Northwestern Lumber Co. v. Grays Harbor & P. S. Ry. Co.

221 F. 807, 137 C.C.A. 365, 1915 U.S. App. LEXIS 1372

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 15, 1915
• Docket: No. 2423
• Status: Published

Opinion

MORROW, Circuit Judge

(after stating the facts as above). [1] This is an action to enforce the' specific performance of a contract. The contract relates to the sale and conveyance of real estate, which must be in writing under the statutes of Washington (Ballinger’s Codes and Statutes of Washington, §§ 4517, 4518), and under the statute of frauds. Swash v. Sharpstein, 14 Wash. 426, 44 Pac. 862, 32 L. R. A. 796. The exception that performance or part performance will take the contract out of the statute is not involved in this case. The only writing signed by the parties making the agreement is a letter of the Railway Company, dated June 9, 1909, and its acceptance by the Lumber Company. Was this writing a completed contract, or in part a treaty looking to further negotiations and an agreement with respect to details not mentioned in the letter ? The letter contained this provision, among others:

“A formal agreement shall be entered into, pending actual transfers.”

This provision was as much a term of the letter and its acceptance as the purchase price or any other term therein mentioned. What was the purpose of this provision? No transfer was to be made until this formal agreement had been entered into by the parties to the transaction. The provision is plainly open to the construction that the contract for the conveyance of the real estate was not to come into existence until this formal agreement had been drawn up and executed by the parties; and there are cases of the highest authority holding that under such a provision the execution of a formal contract is a necessary proceeding in the making of the completed contract.

In Chinnock v. Marchioness of Ely, 4 De Gex, J. & S. 638, 46 Eng. Rep. 1066, the action was for the specific performance of an agreement contained in letters offering to sell real estate, and the acceptance of the offer by the intending purchaser. One letter, written by the solicitors of the vendor, contained this statement:

“The draft contract is. being prepared and will be forwarded to you for approval in a few days.”'

The draft contract was never signed. Lord Chancellor Westbury, in construing these letters, said:

“If to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation.”

In Winn v. Bull, 7 Ch. Div, 29, there was a written agreement for the leasing of a dwelling house for the term of seven years containing this provision: •

“This agreement is made subject to the preparation and approval of a formal contract.”

The solicitor for Winn, the owner of the house, subsequently sent to the solicitor for Bull, the prospective lessee, a draft of the proposed lease containing a covenant on the part of the latter to keep the premises in repair. The original agreement provided that the first year’s rent was to be allowed to Bull, the lessee, to be paid out by him in substantial repairs to the property. Bull objected to the covenant in the draft of the formal agreement requiring him to keep the premises in repair. After correspondence between the parties, resulting in Winn agreeing to a lease substantially in its original form, Bull refused to take the lease at all. Winn thereupon brought an action for the specific. performance of the original agreement. The defendant Bull relied upon the statute of frauds, alleging that the agreement was conditional only, and that no final agreement for the lease was ever reduced to writing or signed by him or his agent, within the meaning of the statute. Sir George Jessel, Master of the Roils, was of opinion that there was no contract. He said:

“The distinction between an agreement which is Anal in its terms, and therefore binding, and an agreement which is dependent upon a stipulation for a formal contract, is pointed out in the authorities.”

He then referred to Chinnock v. Marchioness of Ely, supra, and said:

“It comes, therefore, to this: That where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says; it is subject to and is dependent upon a formal contract being prepared.”

In Page v. Norfolk, 70 L. T. R. 781, the plaintiffs had by letter offered the defendants a specific sum for their business as brewers, including freehold and leasehold premises. The letter contained the following-provision:

“This offer is made subject to our approving a detailed contract to be entered into.”

The letter mentioned the date for completion, and referred to the payment o f the purchase money in cash and preference and debenture stock of a brewery company to be formed. The defendants accepted the terms contained in the letter by signing it. Subsequently they recused to complete it, and the plaintiff brought an action for the specific performance of the original agreement, having waived the provision as to the detailed contract. The appellate court held that the agreement in the letter and its acceptance was not a binding contract between the parties, inasmuch'as it was made subject to the plaintiff “approving a detailed contract to be entered into.”

In Hackley v. Oakford, 98 Fed. 781, 39 C. C. A. 284, the plaintiff, Oakford, submitted to the attorney for the defendant, Blackley, a written proposal to lease from the defendant certain coal lands for mining purposes. The proposal stated the royalties to be paid, but contained the condition:

“Lease to contain usual mining privileges, and a reasonable minimum.”

The proposal was submitted to the defendant by her attorney, who wrote the plaintiff, stating that:

. “The acceptance is predicated upon the signing of such a lease as I [the attorney] shall advise and prepare.”

The attorney thereupon prepared a lease and submitted copies to both the plaintiff and the defendant. The defendant declined to sign the lease, but, so far as appears, without making any specific objection to its form. The plaintiff signed it, and insisted upon its performance, and brought suit accordingly. The decree of the Circuit Court was in favor of the plaintiff (Oakford v. Hackley, 92 Fed. 38), but the Circuit Court of Appeals reversed the decree and directed the dismissal of the bill, on the ground that there could be no decree for specific performance in the absence of a specific contract, and that until all the essential points had been mutually and finally assented to there was' no such contract. A petition for a writ of certiorari was presented to the Supreme Court and denied. Oakford v. Hackley, 177 U. S. 694, 20 Sup. Ct. 1028, 44 L. Ed. 945.

The foregoing cases state no new principle of law, but they are instructive as illustrating how the courts, in dealing with negotiations for a contract, adhere strictly to the requirement that to make a contract the minds of the parties to it must come to an agreement with respect to its essential terms; and when one of such terms in a preliminary agreement provides for a formal agreement to be entered into, between the parties, the formal agreement, if it is to contain anything more than mere detail, is necessary to the completion of the contract ; and when the agreement is within the statute of frauds the terms of such a contract must be in writing.

[2] This brings us to the consideration of the evidence relating to the negotiations carried on by the parties respecting the formal agreement provided for in the letter of June 9, 1909. The first draft of the formal agreement was prepared by representatives of both the Railway Company and the Lumber Company. The president of the latter company refused to accept this form of the agreement, and he thereupon prepared or had prepared for him a second draft, which he signed, containing a number of changes and additions. The first draft of the agreement provided for the payment of the purchase price upon the execution and delivery of the deeds of conveyance, in accordance with the terms of the letter of June 9, 1909. The second draft provided for the payment of $20,000 cash upon the execution of the agreement, and the remainder of the purchase price upon the éxecution of the deed. This was a distinct departure, from the terms of the letter and its acceptance; but, as it was consented to by the Railway Company, the change became immaterial. But the fact that such change was made by the Lumber Company affords strong evidence that that company did not at that time consider itself bound by the terms of the letter and its acceptance as a completed contract.

There was also inserted by the Lumber Company a clause stating that the bridge which the Railway Company proposed to build over the Hoquiam river might be a bridge for the joint and common use of the Railway Company and the city of. Hoquiam, provided the city of .Hoquiam contributed its share of the cost of construction and maintenance thereof. This was objected to by the Railway Company. It was evidently not a matter of mere detail, which it is conceded the parties might have inserted in the formal agreement without incurring the objection that it was a new term not previously assented to. It was in no wise connected with the general scheme of the agreement between the parties which was outlined in the letter of June 9, 1909, and was a distinct departure from any of the writings which had been exchanged between the parties. It was manifestly a matter of primary importance to the Railway Company, in making the proposed contract, to know whether the bridge which it proposed to build across the Hoquiam river should he of a type of its own choosing, and built and used by itself alone, or whether it should be required to permit the city of Hoquiam to' have a voice in the construction of the bridge, and should be further required to permit the city of Hoquiam to use the bridge jointly with it. This was a subject which, so far as the correspondence between the parties, or the letter and its acceptance, show, had not been considered by either of the parties, and upon which their minds had not met during the negotiations leading up to the signing of the letter of June. 9, 1909, and its acceptance.

Hut the Lumber Company contends that the clause respecting a joint user bridge, inserted by them in the draft of the agreement, was no departure from the letter of June 9, 1909; that it was inserted by it in furtherance of the provision in the letter providing that the Lumber Company would give to the Railway Company its co-operation in procuring other properties and other franchises in Hoquiam; that the paragraph numbered <7 in the draft of the agreement, providing that the Lumber Company would “co-operate with the said second party in procuring such franchises of the city of Hoquiam as it may desire, and in securing such additional rights of way in the city of Hoquiam as tire second party may desire,” was broader than the corresponding danse in the letter, and that the insertion of the bridge clause at the end of paragraph 8 was essential to limit the terms of paragraph 7.

There are several answers to this contention. The most obvious one is that there is no relationship between the two clauses. The added clause would not have restricted the provisions of paragraph 7, nor would it have relieved the Lumber Company of the obligation imposed by that paragraph. Again, the Lumber Company might have eliminated paragraph 7 as it was worded in the draft (if in its opinion it was broader than the corresponding clause of the letter), and might have substituted therefor the language respecting co-operation in securing franchises contained in the letter. We do not believe that, in seeking to bind the Railway Company to a bridge to he used in common with the city of Hoquiam, the Lumber Company had in view the limiting of its obligation respecting its co-operation in the securing of franchises in Hoquiam. Neither are we inclined to give serious credence to the reason, advanced by the president of the Lumber Company, that his company wanted to go on record as being in favor of the type of bridge which the city of Hoquiam was insisting upon, and that the Lumber Company did not want the city to think that it was opposed to the erection of a joint user bridge. The testimony tended to show that, had the current of traffic between East Hoquiam and West Hoquiam been deflected across the Hoquiam river by means of the bridge proposed to be built by the Railway Company at Simpson avenue, the lands and business of the Lumber Company would .have been-materially benefited by reason of increase in value. This, as we view the testimony, was the real reason for the insertion of the bridge .clause. That was no part of the original understanding between the parties, and must be deemed to have been an attempt on the part of the Lumber Company to introduce into the agreement a new and distinct subject-matter.

But the ultimate refusal of the Railway Company to execute the formal agreement was not caused by the insertion by the Lumber Company into the formal draft of the clause respecting a joint user bridge. It had served to delay the execution of the formal agreement, but negotiations between the parties were still in progress on the 9th day of September, 1910, on which date the clause respecting the bridge became immaterial and of no effect by reason of the settlement of the controversy between the Railway Company and the city of Hoquiam. On that date the Railway Company, so far as the record reveals, stood ready and willing to execute the formal agreement called for by the letter and acceptance of June 9, 1909. All matters of dispute had at that time been adjusted to the satisfaction of both parties. But the Lumber. Company, again disregarding the letter and acceptance, and treating it as having no binding effect upon it, demanded from the Railway Company an additional sum in addition to the purchase price mentioned in the letter and acceptance. There is a conflict in the testimony as to whether this demand was for interest or as an additional sum for the land. C. H. Jones, the president of the Lumber Company, who represented that company and made the demand, whatever it was, testified that in September, 1910, he went to the office of Mr. Holman, the chief engineer, representing the Railway Company;' that Holman told him that he had just finished with the Hoquiam city committee and the citizens’ committee of the Commercial Club in regard to the bridge matter, and that they were each going to build a bridge. Jones says he told Holman that he was glad they had settled on something, but that he thought they were mistaken that they did not have a common user bridge. Holman went on to say: “We can now fix up with you.” Jones says he told Holman he was glad of that; that they had not changed their price, or anything, but he thought they ought to have interest. Holman wanted to know how much interest and what it was on. Jones says he replied that he did not know, but he thought they should have interest on the amount. Holman replied that he could not do anything in regard to interest and would have to drop the matter. - Jones testified further that: v '

“No official of our company called upon, the railroad company to carry out the original contract at any time' after this interview with Holman in September; 1910, until Mr. Emerson tendered the deeds in June or July, 1911, after we heard they had arranged to operate over the Northern Pacific tracks. Mr. Emerson, through Mr. Griffiths, of Seattle, went to the railroad company in June or July, 1911. It was after we had information of the arrangement with the Northern Pacific. It came in a roundabout way. We took no steps in the matter until the deeds were tendered by Mr. Griffiths, when yre learned of Iho arrangement with the Northern Pacific. No formal agreement was ever tendered after the signing of the agreement which I signed.”

J. R. Holman, the engineer of the Railway Company, and its representative in these negotiations, testified with respect to this conversation with Jones that it occurred on September 9, 1910; that Mr. Bridges, the attorney for the Railway Company was present; that the conference was after the agreement with the city had been reduced to writing and signed; that Jones came over (to Seattle) on request by telephone. Holman relates the proceedings of the conference as follows :

“I remarked that we had now reached an agreement with the bridge committee with reference to the bridge. Mr. Jones said: ‘Yes; so I understand.’ X stated in a general way the terms of that agreement, and concluded by saying: ‘We are now ready to close up our trade with you.’ Mr. Jones said: ‘Yes.’ I said: ‘This can be done now merely by your making a satisfactory deed, and we will make payment.’ Mr. Jones said: ‘Yes.’ I said: ‘We will make the payment, which X understand is $134,000, according to the tentative agreement.’ Mr. Jones says: ‘Yes; but now the property will cost you more money; it will cost you $144,000.’ I says: ‘What is the extra $10,000 for?’ Mr. Jones says: ‘Well, we considered this trade closed over a year ago, and there is a matter of interest.’ Mr. Bridges broke into the conversation at that point and said to Mr. Jones: ‘T don’t see how you can take that stand. Yon have been in possession of the property all the time, and it has been understood and agreed between us that this matter was held up awaiting negotiations with the city.’ Mr. Jones broke into Bridges’ talk and said: "That makes no difference. That property will now cost you $144,000.’ I says: "Mr. Jones, we will never consider that for a minute; we will not pay that price.’ Mr. Jones said: ‘You will either pay that price or not get the property.’ X says: ‘Well, we will not take the property at that price. 1 will not agree to it.’ Mr. Jones remarked: ‘Well, either you or somebody else will pay that price before you get the property.’ He appeared during the latter part of the conversation very much iz’ritated. He was flushed in the face, and went out of the office after saying these last words, or, rather, slammed the door after him as he went out.”

That was the end of the conference.

J. R. Bridges, the attorney for the .Railway Company, who was present at the conference referred to in the foregoing testimony, testified as follows:

“There were present Mr. Jones and Mr. Holman and myself. Mr. Holman, stated to Mr. Jones that an agreement had been made with the citizens’ committee with reference to the bridge at Simpson avenue crossing, whereby the railroad was to put a bridge on part of the street that would be in the nature of a lift bridge, and the city, whenever they chose to, should have the remainder of the street. Mr. Jones said-that he understood that such was the condition. * * * Mr. Holman then stated to Mr. Jones that the railroad company was ready now, this bridge matter having been settled, to close the deal for the purchase of the right of way from the Northwestern Lumber Com] 'any, which, he said, he remembered the consideration was to be $134,000. Mr. .Tones answered, and said: ‘Yes; that was the amount; but,’ he said, ‘it will cost you more money now; it will cost you $10,000 more, or $144,000.’ Mr. Holman said to Mr. Jones: ‘I do not know why it should be any more than it was; why you should make it $144,000.’ Mr. Jones answered by saying that this price had been pitt on about a year before, and that now the price was $144,000. At that stage of the conversation X said to Mr. Jones that it did not look reasonable or fair that he should increase the price of it, 'although the price of $134,000 had been fixed something like a year ago; that there had been many things standing in the way of consummation, and that his company had been in possession and occupancy of the land all the time, and the railroad company had had no use of it whatever. He said that that did not make any difference; that the price now was $144,000. It appeared that my talk to him rather put him out of humor, or at any rate he left that impression with me. He was somewhat flushed. Mr. Holman then said: ‘Now, Mr. Jones, we are ready to take up this deed for $134,000, and pay you for it; but we yvill not pay you any more.’ Mr. Jones says: ‘You cannot •have it for any less than $144,000,’ and walked out of the office. That was the end of it.”.

Mr. Bridges further testified:

“As far as my knowledge goes, there was no talk with the Northwestern people after September, 1910, concerning the right of way, until August 5, 1911, when Mr. Emerson and Mr. Griffiths, who was representing the Lumber Company as their attorney in that matter, came to my office and asked me if I was secretary or some official of the Grays Harbor & Puget Sound Railway Company, and I told them that I was secretary formerly, and they then made demand with reference to the taking over of this property and at that time tendered a deed. That was some three months after the announcement had been made of the arrangement with the Northern Pacific. They had and presented deeds executed by the Northwestern Lumber Company—two or three different deeds; one was a quitclaim deed, and one a warranty. It was a formal tender of performance on their part. They demanded $134,000. Mr. Griffiths, in the presence of Mr. Emerson, stated that they now made demand that the railroad company now1 take up the deed on payment of $134,000, and they waived any interest claim, and waived anything that might have been in the contract with reference to the bridge clause, and said they made their demand upon the purported contract which had been executed by the Northwestern Lumber Company, and which the railroad company refused to execute, and the original offer in the Emerson proposition and the acceptance thereof by Mr.' Baldwin. I refused the tender. The suit was brought soon afterwards.”

There was no provision in the letter and its acceptance of June 9, 1909, respecting payment of interest “pending transfers,” or pending negotiations for the completion of tire formal agreement. The demand of the Lumber Company for an additional sum of $10,000, or for any sum, as interest on the original purchase price for the period during which negotiations for the purchase of the property had been in progress,1 was therefore a demand for the performance by the Railway Company of a condition upon which the minds of the parties had not met, and was a condition not covered by or included in any of the writings exchanged between the parties. It was accordingly rejected.

But interest on the purchase price could not be legally demanded by the Lumber Company until the Railway Company was in default in payment, and it was not in default in September, 1910, when the demand was made, for the reason that the Lumber Company did not tender or offer to tender to the Railway Company its deeds to the property, notwithstanding the latter company offered then to pay the purchase price. At this point the negotiations between the parties failed. No agreement was reached as to the terms of the formal agreement, and no offer was made by the Lumber Company to carry out the terms of the original agreement, and no agreement was had as to further negotiations. The transaction was clearly at an end. Thereupon the Railway Company proceeded to negotiate with the Northern Pacific Railway Company for an entry into the city of Hoquiam over the. tracks of-, the latter road, and for the use of its station facilities in Hoquiami,. ¡and this arrangement was finally completed in May, 1911. In tlie meantime the Lumber Company did nothing. It did not seek to revive negotiations for the sale of its property until the agreement between the Railway Company and the Northern Pacific Railway Company had been made public. It then came forward in July or August, 1911, and tendered the Railway Company its deeds to the property and demanded payment of $134,000, without -interest. This was nearly a year after the Lumber Company had refused to accept that sum for its property. It was then too late. The transaction had been closed and was at an end, and there was no equity in the situation requiring its revival.

There is hut one conclusion to be drawn from these proceedings, and that is that no final agreement was reached with respect to the formal agreement provided in the letter and its acceptance of June 9, 1909, and no such agreement .was reached or otherwise reduced to writing concerning the sale and conveyance of the property mentioned in that letter. There was therefore no contract to be enforced in this case, and the court was right in entering a decree dismissing the bill.

The decree of the District Court is afiirmed.