Clark v. Rosario Mining & Milling Co.

176 F. 180, 1910 U.S. App. LEXIS 4236

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 21, 1910
• Docket: No. 1,770
• Status: Published

Opinion

ROSS, Circuit Judge

(after stating the facts as above). The first and an insuperable obstacle to the affirmance of the decree appealed from is that the aggrieved party brought its suit in a court of equity, to enforce the specific performance of a written contract, which contract showed upon its face, as the court below expressly held, that for’ its breach by the appellant and his associates the appellee should not be'entitled to a specific performance of it, but should be limited to a stipulated sum as damages of $100,000. Under such circumstances, the only appropriate tribunal for the recovery of that money demand was a court of law. It did not come within the jurisdiction of a court of equity. San Francisco National Bank v. Dodge, 197 U. S. 70, 25 Sup. Ct. 384, 49 L. Ed. 669; Whitehead v. Shattuck, 138 U. S. 146, 11 Sup. Ct. 276, 34 L. Ed. 873; Thompson v. Central Railroad Co., 6 Wall. 134, 18 L. Ed. 765; Phœnix L. I. Co. v. Bailey, 13 Wall. 616, 20 L. Ed. 501. But, even if it could be held that the case made by the bill came within the jurisdiction of a court of equity, was the case, in view of the issues and of the evidence, such as justified the court below in retaining it for the purpose of awarding money compensation for the breach of the contract by the appellant and his co-contractors ?

The contract recited that the appellee was the owner of the property it contracted to sell and'which the appellant and his associates agreed to buy. It is true that the contract (which it was shown was drawn by the appellee’s attorneys) also recited that the appellant and his associates had examined the appellee’s title to the property and were satisfied therewith. In the same connection, however, it will be observed that although the contract recited that the appellee was the owner of the property, when it came to provide for the conveyance of it to the appellant and his associates upon the performance of their agreements, the contract provided for the transfer of “the titles which the first party [the appellee] through its directors or otherwise has in and to sai,d property.”

By his answer to the bill the appellant set up, among other things, that the. appellee’s title was defective, and in support of that issue introduced evidence tending to sustain it. That evidence the trial court failed to consider, deeming the appellant concluded by the provisions of the contract above referred to. If there was a mistake in regard to the title, and if, in truth, the appellee’s title to the property was not good, we do not understand that, under the principles governing courts of equity, specific performance of such a contract would be enforced. Moreover, there are other provisions of the contract in question which we think would preclude a court of equity from enforcing specific performance of it. As will be seen from its recitals, two previous contracts had been made between the parties concerning the property, under which the appellant and his associates had, at their own expense, performed certain development work thereon, under options to purchase the property, which options they declined to exercise, and, the same having expired, the appellee became entitled to the possession of the property, “together with all of the improvements, repairs, machinery, materials, tools, equipments and betterments placed thereon” by the appellant and his associates, together with other specified things, “excepting current supplies of wood, groceries, chemicals, 'and unused hardware supplies”; and proceeds the contract in question :

“Whereas, it is the desire of each of the parties to further develop said property by the development work hereinafter stipulated, to the end of more certainly determining the value of said property, so that the first party [ap-pellee] may be able to sell the same to the best advantage to any purchaser which it may find, and in the event of a sale at a figure above $000,000 to other parties that the -first party [appellee] will out of such proceeds compensate the second parties [appellant and his associates] in part for the expenditures they have made in development of said property as herein provided;.and, whereas, in order to carry out this arrangement and purpose, and to afford the second parties [appellant and his associates] an opportunity to buy said property at the price of $000,000, in the event of a failure of the first party [appel-lee] to make a sale of said property during the life of this contract at more than $600,000, and to afford the second parties [appellant and his associates] a preference right to buy said property at the price of $000,000, as herein stipulated ; and, whereas, it is necessary to keep said property open and the operating plant in operation; and whereas, the second parties [appellant and his associates], as a consideration in part for this option contract, is desirous of keeping open said offer to buy said property at the price of $400,000, subject to the right of the first party [appellee] to accept the offer at any time during the life of this contract,”

■ — -the respective parties stipulated and agreed, in effect: (1)' That the appellant and his associates should keep open for one year from the date of the contract in question an offer therein made of $400,000 for the property, and to make such payment therefor within 30 days after being notified by the appellee of its acceptánce; provided, that, if the offer should be accepted within the then next four months, the appellant and his associates should have until September 1, 1902, within which to make such payment. (2) The appellee reserved the right to sell the property to or contract with reference thereto with other parties at any time; provided that, before selling it for $600,000, or less, to other parties, “the first party [appellee] shall give to the second parties [appellant and his associates] a preference right to buy the same at said price' so offered to others, and to that end shall notifjr the second parties [appellant and his associates] of such contemplated sale or offer, and the. second party shall promptly exercise its performance (preference) right upon being- so notified and afforded an opportunity to do so, and shall have thirty days after electing to take the property in which to make thé payment for the property” — with the further option to the appellant and his associates to buy the property at -the end of one year for $600,000, American gold, or its equivalent. (3) The appellee further agreeing that:

“If during the year up to May.l, 1903, the first party [appellee] shall sell said property or make a valid contract of sale thereof to other parties, resulting in a sale of the same at a price greater than $050,000, it shall pay to the second parties $50,000 out of the excess of the purchase price above $000,000, except that, if such excess does not amount to $50,000, then such amount as the jmrcbnso price upon such sale shall exceed .$(¡00,000; provided that., if the purchase price upon such sale shall not exceed $650,000, 'the second parties ¡appellant and his associates! shall have the preference right to take the property at the price of $600,000; provided, also, that In the event of a sale to other parties, partly on a credit, the payment of the $50,000 or the excess over $600,-000, if less than $50,000, if under this coniraet the second partios fappellant and his associates] shall become entitled to it, shall he apportioned among the time payments of tlie purchase money upon such sale in proportion as it shall 'near to the whole; provided, however, that not less Ilian one-half of the amount to which the second parties shall be entitled shall be paid out of the first cash payment”

The contract then provided for tlie right of free access to tlie mine by the appellee, and to all books and records of its operation, and required the appellant and his associates to remain in possession of the property, and at their own expense to operate it for one year, unless it should be sooner sold, and during tlie first DO days to perform certain specified work in and about the mine, and during that period oí DO days to pay to the appellee 20 per cent, of the gross bullion output from the mine, or mill and cyanide or other reduction plant, and to operate the mill to its full capacity, and then provided that after tlie expiration of the DO days, or the completion of the specified work, if sooner completed, the appellant and his associates should at the option of the appellee continue the operation of the mill and cyanide plant, and keep the mine unwatered, and, for the purpose of paying expenses, should have the bullion output of the mill and cyanide plant; provided, however, that if the output therefrom should exceed such expenses the excess should be paid to the appellee as royally, with the further provision that after the completion of the specified work, if completed before the expiration of the 90 days, and in any event after the 90 days expired, the appellee should have the right to take possession of the property at any time, together with—

"‘all of the improvements, betterments, machinery, and appliances, tools, apparatus, buildings, and supplies of every kind useful in the operation of the property, and as to ail such supplies as under either of said preceding contracts the first party is to pay for, upon said property being turned over to it, an inventory shall lie made, and the same to be paid for at their reasonable ‘value, it being understood that in determining what supplies and materials are to be turned over to the first party I appellee! without being paid for, and what •of such supplies are to he paid for, said original contracts are to be looked to and to govern.”

Then come, after certain provisions concerning the expenses of the work and certain settlements, the provision defining the appellee’s right to accept the offer of the appellant and'his associates to buy the property for tlie sum of $400,000, and their obligation to pay the appellee 8100,000 in the event of their failure to make good such offer, and providing that upon the termination of the contract, “or at any time at which the first party shall elect to take possession of said property, the same shall he turned over to the first party, together with (l-) all- of the betterments, machinery, repairs, apparatus, supplies for all appliances, and machinery and all parts thereof, tools, assay appliances, and all other appliances upon, the property, free of any cost to tlie first party, and (2) also shall be turned over to the first party all of the supplies on hand in the way of wood, charcoal, lime, merchandise,-gro-ce'ries, feed,-powder,'caps and fuse, cyanide, chemicals and all other supplies,'the first party to pay for such supplies as are mentioned unddr this,'paragraph (3) their reasonable value,” with certain minor provisions shown in the statement.

The effect of the contract was to require the appellant and his associates to do very extensive development work upon the propertjr at their own expense for one year (save the right to apply 80 per cent, of the gross bullion output to expenses during the first 90 days); to operate the reduction works to their full capacity for one year, and pay the appellee 20 per cent, of the gross output during the first 90 days, regardless of the expense of getting it out, and all of the profits thereafter; to keep open their offer to buy the property for $400,000 at any time within the year, even though the development work should prove the mine-valueless, with the consequent liability in the sum of $100,000 in the event of their failure to comply with the terms of the offer, should it be accepted; and with the reserved right on the part of the appellee to sell the property to any other party at any price it might fix, in the event the development work performed by the appellant and his associates should prove the mine to he of great value, with the condition that, -in the event such sale to a third party should equal or exceed $650,000, the appellee would pay $50,000 thereof to the appellant and his associates, or any less excess- over $600,000, with the preferred right already mentioned to the appellant and his associates to become the purchaser at the price of $600,000. The only real obligation the contract seems to have imposed upon the appellee was to pay for the stpres and supplies the appellant and his associates might have on hand in the event it should resume possession of the property, which it reserved the right to take at any time after 90 days (thereby depriving the appellant and his associates of the right to further explore it), and to sell the property to the appellant and his associates at the end of the year for $600,000, provided it had not already sold or contracted it to somebody else.

It is difficult to conceive of a much more one-sided contract. It is one that we do not think any court of equity should decree the specific performance of. “To stay the'arm of a court of equity from enforcing a contract,” said the Supreme Court in Pope Manufacturing Co. v. Gormully, 144 U. S. 224, 236, 12 Sup. Ct. 632, 637, 36 L. Ed. 414, “it is bjr no means necessary to prove that it is invalid. Erom time immemorial it has been the recognized duty of such courts to exercise a discretion, to refuse their aid in the enforcement of unconscionable, oppressive, or iniquitous contracts, and to turn the party claiming the benefit of such contract over to a court of law.” In Willard v. Tayloe, 8 Wall. 567, 19 L. Ed. 501, the same court said:

“In general it may be said tbat tbe specific relief will be granted wlien it is apparent from a view of all the circumstances of the particular ease -that it will subserve the ends of justice, and that it will be withheld when from a like view it appears that it will produce hardship or injustice to either of the parities. It is not sufficient, as shown by the cases cited, to call forth the equitable interposition of the court, that the legal obligation under the contract to do the specific thing desired may be perfect. It must also appear that the specific enforcement will work no hardship or injustice, for if that result would follow the court will leave the parties to their remedies at law.”

In King v. Hamilton, 4 Pet. 311, 327, 7 L. Ed. 869, the Supreme Court, in speaking of the power of a court of equity to decree specific performance, said:

“But this power is to be exercised under the sound judicial discretion of the court, with an eye to the substantial justice of the case. When a party comes into a court of chancery seeking equity, he is bound to do justice, and not asli the court to become the instrument of iniquity. Where a contract is hard and destitute of all equity, the court will leave parties to their remedy at law: and if that has been lost by negligence, they must abide by it. ft is a settled rule, therefore, to allow a defendant in a bill for specific performance of a contract to show that it is unreasonable or unconscientious.”

In Marks v. Gates, 154 Fed. 481, 484, 83 C. C. A. 321, 324, 14 L. R. A. (N. S.) 317, we said:

“A court of equity will not grant pecuniary compensation in lieu of specific performance unless the case presented is one for equitable interposition such as w'ould entitle plaintiff to performance but for intervening facts, such as a destruction of the property, the conveyance of the same to an innocent third person, or the refusal of the vendor’s wife to join in the conveyance”—citing Cooley v. Lobdell, 153 N. Y. 596, 47 N. E. 783; Matthews v. Matthews, 133 N. Y. 679, 81 N. E. 519; Bourget v. Monroe, 58 Mich. 563, 25 N. W. 514; Eastman v. Reid, 101 Ala. 320, 13 South. 46; Milkman v. Ordway, 106 Mass. 232.

In other words, the ancillary power to a-ward compensatory damages can only be exercised in a case where the equitable relief prayed for might have been given. See McQueen v. Chouteau’s Heirs, 20 Mo. 222, 64 Am. Dec. 178.

The case of Cathcart v. Robinson, 5 Pet. 264, 8 L. Ed. 120, relied on by the court below in support of its decision, is quite different from the present one. There Robinson properly brought his suit in the court of equity to enforce a contract of sale, as is expressly stated by the court in its opinion, while here the appellee never had any right to go into a court of equity, for the reason that the contract upon which the suit is based expressly showed upon its face, as the court‘below held, that the appellee was not entitled to specific performance of it, but only to damages in the event of its breach.

The judgment is reversed, and the case remanded, with directions to the court below to dismiss the suit, at the complainant’s cost.