Dunlop v. Baker

239 F. 193, 152 C.C.A. 181, 1916 U.S. App. LEXIS 2568

• Court: Court of Appeals for the Fourth Circuit
• Decided: November 9, 1916
• Docket: No. 1424
• Status: Published

Opinions

WOODS, Circuit Judge.

The ultimate practical question in this appeal is whether the bankrupt, Robert E. Baker, may escape from an option agreement made by him' to sell a tract of land to the petitioner, J. J. Dunlop-, which turned out to be disadvantageous. The option executed by Baker and his wife, Lillie M. Baker, under seal, was in these words:

“For and in consideration of one dollar, to me in band paid, tbe receipt of which is hereby acknowledged, and other good and sufficient considerations, X hereby agree to give J. J. Dunlop, or assigns, the exclusive right to purchase the 418 acres of land owned by Robt. E. Baker, situated in Prince George county, state of Virginia, with the appurtenances thereunto belonging, for the sum of $12,000- from the 9th day of April, 1915, to the 9th day of July, 1915, upon the following terms, $200 on signing of contract, and trust for balance of equity, on the delivery of good and sufficient warranty deed, and the balance as follows: Purchaser to assume existing trust on property.”

The date on the paper was April 9, 1915, but the real day of execution was Sunday, April 11, 1915. On the following day, April 12th, Baker filed his petition in bankruptcy, and the adjudication immediately followed. Among the assets set down in his schedule by the bankrupt was the tract of land described in the option at a valuation of $12,000. On May 1st, Dunlop filed a petition in the bankruptcy proceedings, setting up the option, and asking that he be allowed to pay into court the purchase money, $12,000, and that, upon the payment, the trustees be directed to convey the land to him free of liens. On May 8th the bankrupt, answering the petition, admitted its allegations and joined in its j5rayer. On May 20th Dunlop filed an amended petition, alleging that when he filed the original petition he was advised that the bankrupt's assets would be more than sufficient to pay his debts, but that it had developed at the hearing before the referee that the liabilities might exceed the assets; that the rights of the petitioner under his option were inferior to the lien given to the trustees for the benefit of creditors under section 47 of the Bankruptcy-Act (Act July 1, 1898, c. 541, 30 Stat. 557 [Comp. St. 1913, § 9631]); that in order to protect his rights he offered to pay into court such amount, in addition to the purchase price of $12,000, as may be necessary to pay all the debts of the bankrupt and costs of the proceedings; that in exercising his rights to discharge the lien of the trustees he was—

“entitled to be subrogated to all rights against the bankrupt and his creditors, and therefore to the right to contest all claims which may be filed against said bankrupt, and the further right to require the marshaling of the assets of said bankrupt, and such application of said assets as will protect your petitioner’s right in the premises.”

The petitioner asked on these allegations that the title be made to him on his making a deposit in bank awaiting the determination of the questions that might arise, and to, be applied as the court might determine. The bankrupt, by his answer filed on May 28th, completely reversing his position, denied the rights of the petitioner to have the relief sought, even under the facts stated in the petition, and set up the following affirmative defenses: (1) Want of any consideration for the option; (2) such indefiniteness and uncertainty in the option as to make it incapable of enforcement; (3) invalidity of the contract because executed on Sunday. The answer of Lillie M. Baker, wife of the bankrupt, set up substantially the same defenses.

It is needless to recite the steps through, which the controversy finally reached the District .Court and was decided. The court dismissed the petition and ordered the land to be sold at public auction; but the order provided “that all valid liens upon and claims to the said property be, and they are hereby, transferred and shall attach to the proceeds of sale.” At the sale the land brought $31,000. The aggregate of the debts of the bankrupt and costs and expenses of the proceedings is $18,853.43.

The facts agreed on before the District Court may be thus summarized: (1) Execution of the option on Sunday, and the procurement by Dunlop of other options on other lands in the vicinity during the months of April and May, 1915; (2) the sale of other lands near by just before the trial at $125 per acre; (3) the knowledge by Dun-lop, immediately after he had procured the option, that Baker, before giving it, had signed his petition and schedule in bankruptcy, and had placed them in the hands of his attorney for filing; (4) the existence of liens on the land at the time the option was given, in the form, of deeds of trust, aggregating $8,000 and interest.

[1] For the sake of clearness we consider, first, whether there was ever any contract to sell the land binding on the bankrupt. The defense of want of consideration cannot be sustained; for the option was under seal and expressed the consideration of “one dollar and other good and sufficient consideration,” and no evidence is offered that the paper spoke falsely in this respect. The point was elaborately discussed by Judge Cardwell in Watkins v. Robertson, 105 Va. 269, 54 S. E. 33, 5 L. R. A. (N. S.) 1194, 115 Am. St. Rep. 880, the court holding that an option under seal for the sale of certain shares of stock, expressing the consideration of $1 and the condition that it be accepted within a stated time, should be treated as an irrevocable covenant, of which equity would enforce specific performance upon due acceptance by the optionee. The court said that the case of Graybill v. Brugh, 89 Va. 895, 17 S. E. 558, 21 L. R. A. 133, 37 Am. St. Rep. 894, which expressed a contrary view, was to be considered practically overruled by Central L. Co. v. Johnston, 95 Va. 223, 28 S. E. 175. The Supreme Court of the United States thus states the familiar rule:

“The covenant in the lease giving the right or option to purchase the premises was in the nature of a continuing offer to sell. It was a proposition extending through the period of ten years, and being under seal must be regarded as made upon a sufficient consideration, and therefore one from which the defendant was not at liberty to recede. When accepted by the complainant by his notice to the defendant, a contract of sale between the parties was completed. * * * When a contract is of this character, it is the usual practice of courts of equity to enforce its specific execution upon the application of the party who has complied with its stipulations on his part, or has seasonably and in good faith offered, and continues ready, to comply with them.” Willard v. Tayloe, 75 U. S. (8 Wall.) 557, 19 L. Ed. 501, 21 L. R. A. 129, note.

[2] The defense of indefiniteness and uncertainty is equally unfounded. The option clearly meant that upon its acceptance and the execution of the contract of sale the purchaser was to pay $200 in cash, assume the payment of the debts secured by the trust deeds covering the property, and execute-for the benefit of the seller a-trust deed as security for the difference between the purchase price, $12,000, and the aggregate of the cash payment and the liens assumed by the purchaser. This construction of the contract was assented to as correct by the bankrupt in his answer to the original petition. The only item not definitely fixed was the time for the payment of the balance going to the seller. But it is settled by authority from which there is no dissent that expression of the time of payment is not essential to the validity of a contract of sale. If no time be mentioned, it is to be inferred that either immediate payment or payment in a reasonable time according to the circumstances is intended. 36 Cyc. 597, and authorities cited.

[3] This brings us to the question whether an option executed for valuable’consideration is invalid because executed on Sunday. The Virginia statute provides:

“If a person on tbe Sabbath day be found laboring at any trade or calling, or employ his apprentices or servants in labor or other business, except household or other wort of necessity or charity, he shall be deemed guilty of a misdemeanor,” etc. Code 1904, § 3799.

In the absence of any construction of this statute by the Virginia court, we must depend upon reason and the construction of similar statutes by other courts. The state statutes on the subject may be divided into two classes. In a large number of the states the prohibition is against the doing of any business or labor on Sunday. In these states it has been generally held in cases too numerous for citation that the giving of a note, or bond, or mortgage, or conveyance is doing business, and therefore is within the statute.

In other states, however, the statutes do not make every isolated business transaction criminal. These express a different purpose, namely, the stopping and breaking of the continuity of the trades and callings — ■ the regular everyday occupations — of the people, to the end that the individual and the public at large may have the benefits expected from the general observance of the Sabbath. Their language seems carefully chosen to exclude the idea that the citizen may be harassed by prosecution for every incidental or isolated transaction he may make on Sunday. The English statute is in this class, enacting that:

“No persons shall da or exercise any worldly labor, business, or wort of their ordinary calling upon the Lord’s day.”

So it was held in Drury v. Defontaine, 1 Taunt. 131, and Bloxsome v. Williams, 3 B. & C. 232, that the sale of a horse and a contract of hiring, not made in the ordinary calling of either party to the contract, were valid. Rex v. Inhabitants of Whitnash, 7 B. & C. 596. The Georgia, North Carolina, and South Carolina statutes in like terms were given the same construction in Dorough v. Equitable Mortgage Co., 118 Ga. 178, 45 S. E. 22; Rodman v. Robinson, 134 N. C. 503, 47 S. E. 19, 65 L. R. A. 682, 101 Am. St. Rep. 877; Hellams v. Abercrombie, 15 S. C. 110, 40 Am. Rep. 684. The Virginia statute is substantially the same. The difference between doing “any labor, business, or work of their ordinary calling” of the English statute, and the “laboring at any trade or calling” in the Virginia statute, is too shadowy for judicial recognition. Both statutes limit the prohibition to the prosecution of any usual or regular occupation or business, and they exclude the idea of punishment for isolated transactions. On the point now involved the distinction between “their ordinary callings” of the English statute, and “any trade or calling” of the Virginia, is unsubstantial. One transaction, such as hiring a servant, or conveying land, or talcing a note or option, unconnected by continuity with other transactions of a like nature, cannot be laboring at a trade or calling of any kind. There is no evidence that either Baker gave, or that Dunlop took, the option in the course of any trade or calling. True, it was agreed that Dunlop during the months of April and May was getting options on other lands in the vicinity, but that does not warrant the conclusion that he was engaged in talcing options as a calling or vocation. We think the fact that the option was taken on Sunday did not invalidate it.

It is true that the granting or refusing of specific performance is a matter within the discretion of the court, controlled by the general principles of equity; but judicial discretion does not extend to the refusal of specific performance of a definite contract untainted by injustice or hardship. Certainly the mere rise in the value of the property has never been recognized as a justification for defying the purchaser the right to the land for which he has bargained. There is no element of injustice or hardship, and we can discover no ground which would justify a court of equity in refusing to enforce the contract. Willard v. Tayloe, 75 U. S. 557, 19 L. Ed. 501.

[4] Having reached the conclusion that the option was good, the next question is: What rights did Dunlop, the optionee, have enforceable in the bankruptcy proceedings ? There can be no doubt that the petition of Dunlop, setting up his status with respect to the property, and asking that he have title to it in compliance with the terms of his option, and the denial by the trustees and the bankrupt of his right to the relief asked, made a controversy in relation to the bankrupt estate which the court had jurisdiction to determine under section 2 of the Bankruptcy Act (Comp. St. 1913, § 9586). There was abundant power in the court to decree specific performance, or grant any other equitable relief which may be necessary in the administration and distribution of-the bankrupt estate. In Whitney v. Wenman, 198 U. S. 539, 25 Sup. Ct. 778, 49 L. Ed. 1157, the true result of a review of the cases was said to be:

“That when the property has become subject to the jurisdiction of the bankruptcy court as that of the bankrupt, whether held by him or for him, jurisdiction exists to determine controversies in relation to the disposition of the same and the extent and character of liens thereon or rights therein.” Hebert v. Crawford, 228 U. S. 204, 33 Sup. Ct. 484, 57 L. Ed. 800.

Clearly the appeal presents to this court one of those controversies arising in bankruptcy proceedings appealable under section 24a of the act (Comp. St. 1913, § 9608). Moody v. Century Bank, 239 U. S. 374, 36 Sup. Ct. 111, 60 L. Ed. 336.

[5] The bankruptcy court having jurisdiction of the subject-matter and the custody of tire property, the filing of the petition for the enforcement of the option was an acceptance of it, and the contract of purchase was thereby perfected, and became binding on both parties, subject, of course, to the rights of creditors. The law has been long settled that the filing of the bill for specific performance is a sufficient acceptance of an offer to sell, making mutual a unilateral contract. Ives v. Hazard, 4 R. I. 14, 67 Am. Dec. 500; Woodruff v. Woodruff, 44 N. J. Eq. 349, 16 Atl. 4, 1 L. R. A. 380; 21 L. R. A. 131, note. But if it be considered that the filing of the original petition did not have this effect, because of the intervening lien in favor of the trustees, it cannot he doubted that the filing of the amended petition of May 26th was an acceptance, and made the contract binding. At that .time the option had not expired, and Baker had not in any way attempted to withdraw it. It is true that bankruptcy had supervened, but that had no other effect than to place the property in the hands of the bankruptcy court, with a lien on it for the debts of the bankrupt and the costs superior to the claim of Dunlop. Nothing but this lien stood between Dunlop and his right to a conveyance of the land upon payment of the purchase money agreed on. It follows that, when he offered to pay a sum in addition to the agreed price sufficient to satisfy the claims superior to his own, he was entitled to the land. In principle the case stands as if Baker had given the option, and then executed to another a mortgage without notice of .the option for more than the price stated in the óption. Surely, in that case Baker could not have set up the mortgage as an obstruction to specific performance, in the face of the offer of the optionee to pay enough above the price agreed on to remove the incumbrance.

Finally, we think these conclusions may be stated as evident: Before the petition in bankruptcy, Dunlop had an option on the land, good and enforceable against Baker. After the filing of the petition in bankruptcy, the right of Dunlop became subordinate to the superior lien of the trustees, to the extent of the bankrupt’s debts and the costs of the proceedings. When Dunlop filed his petition to be allowed to exercise his option, and to protect it by paying into court, not only the option price, but a sum which, together with the price, would satisfy the debts and costs, equity required that he be allowed to pay in the money and to have a conveyance of the property. As holder of a claim'to the property subordinate to the lien in favor of the trustees for the benefit of creditors, under a familiar equity rule, he had the right to be subrogated to the rights of the trustees and creditors upon payment of all debts and costs.

The personal pronoun “I,” in the clause of the option‘T hereby agree to give J. J. Dunlop, or assigns, the exclusive right,” etc., refers to both Robert E. Baker and Lillie M. Baker, since both signed the option. Holman v. Gilliam, 6 Rand. (Va.) 39. The decree of the court should have been in accordance with these conclusions, and conveyance should have been made to Dunlop upon payment, according to his offer, of all debts and costs of the proceedings.

[6] It is argued, however, that these rights have been lost by the sale of the land under the order of the court. Without objection from the bankrupt or the trustees, the order of sale provided:

“That all valid liens upon and claims to the said property be, and the same are hereby, transferred and shall attach to the proceeds of sale.”

Under this order the optionee, Dunlop, has the same right in the proceeds of sale as he had in the land before its sale. The debts and costs considerably exceed the price" mentioned in the option. The effect of giving Dunlop the benefit of his option and subrogation to the rights of creditors, which he would have had but for the error of the court in refusing his offer, is to decree the payment to him of the surplus proceeds of the sale after the payment in full of all the debts of the bankrupt, and the costs of the administration; and it will be so decreed.

Reversed.

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