Skelly Oil Company v. Ashmore

365 S.W.2d 582, 1963 Mo. LEXIS 804

• Court: Supreme Court of Missouri
• Decided: March 11, 1963
• Docket: 47911
• Status: Published

Opinions

HYDE, Judge.

This suit for specific performance was transferred by Division Two to the Court en Banc because of the dissent of one of the Judges. We adopt the statement of facts, the statement of the contentions of the parties and the ruling on the validity of the contract involved from the Divisional opinion as hereinafter set out without quotation marks.

This is a suit by the purchaser, Skelly Oil Company, a corporation, against the vendors, Tom A. Ashmore and Madelyn Ashmore, husband and wife, in two counts. Count One is for the specific performance of a contract to sell the north half of a certain described southwest corner lot (fronting 97½ feet on Main and 195 feet on 42nd Streets) in that part of Joplin lying in Newton County. Count Two seeks an abatement in the purchase price of $10,000, being the proceeds received by the vendors under an insurance policy on a building on the property, which building was destroyed by fire in the interim between the execution of the contract of sale and the time for closing of said sale by the exchange of the $20,000 consideration for the deed to the property. The case was tried in Jasper County upon a change of venue granted from Newton County. The trial court found the issues in favor of the purchaser, decreed specific performance, and applied the $10,000 insurance proceeds on the $20,000 purchase price. The vendors have appealed.

The vendors acquired this property about 1953, and operated a grocery store in the concrete block building, with fixtures and furniture, 'and a one story frame “smoke house” thereon. Deeds of trust on the property, securing notes of the vendors to the Bank of Neosho were of record. At all times here material and up to September 30, 1961, the property was leased to Don Jones at a rental of $150 a month. The vendors had a fire insurance policy, with a standard mortgage clause in favor of the Bank of Neosho attached, on the buildings and fixtures, issued February 8, 1958, for a term of one year.

Joe Busby, of the Kansas City office of the Skelly Oil Company real estate department, and Mr. Ashmore conducted the negotiations resulting in the contract of sale. The Ashmores lived in Lawton, Oklahoma. Mr. Ashmore had engaged in the real estate business since 1951. Busby secured the execution of a Skelly printed form of option by the vendors, dated July 31, 1957, for Skelly “to purchase” for the sum of $20,000, “payable in cash upon delivery of deed” said property, “together with the buildings, driveways, and all construction and equipment thereon, at any time before” August 31, 1957. The words “and equipment” were “x-ed” out on said option. The option provided in typewriting (referring to the Jones lease) : “Purchaser agrees to honor present lease on above property until expiration.” The option originally lapsed August 31, 1957. Busby had an agreement for the mutual cancellation of the lease prepared by Skelly’s legal department for execution by the Ashmores and Jones, and on August 20 took up securing a cancellation of the lease and possession with Ashmore and his lawyer, Mr. Foulke. Mr. Foulke did not know how long this would take and the option was extended to January 1, 1958. Busby knew Ashmore filed an ejectment suit against Jones, was “patiently waiting” to hear from Mr. Foulke, and on trips to Joplin would inquire if any headway was being made on securing possession. On December 30, the option was extended to March 1, 1958. Skelly’s legal department concluded this lease entitled Jones to possession until September 30, 1961. Skelly acquired the property immediately south of the Ashmore property, continued the operation of a service station thereon, and decided to go ahead and exercise the Ash-more option with Jones in possession under his lease and later combine the two properties and erect a service station that required more area than the Ashmore property.

Busby and Ashmore met in Joplin on February 25. Busby informed Ashmore Skelly had decided to purchase under its-option with Jones in possession under his lease. The parties orally agreed to certain details, some being mentioned hereinafter in connection with the contract of sale. Busby also informed Ashmore Skelly could not complete the transaction by March 1, and the Ashmores extended the option from March 1 to March 10, 1958. No consideration passed for any extension of the option.

The Bank of Neosho forwarded the abstract of title to Skelly.

The option provided it could be accepted “by giving written notice” to the vendors. By letter to the Ashmores under date of March' 4, 1958, Skelly explicitly stated: “This letter is to inform you that Skelly Oil Company does hereby exercise its option to purchase the above described property for the sum of $20,000.00, subject to all the terms and conditions of the above referred to option, and with” further understandings, among others, to the effect: The fixtures and equipment in the store building were to remain the property of the Ash-mores; the Ashmores were to assign the Jones lease to Skelly and Skelly was to remit to the Ashmores $5.00 a month for Jones’ use of said fixtures and equipment; the Ashmores were to remove said fixtures and equipment within sixty days after the termination of said lease by lapse of time or otherwise, Skelly assuming no responsibility for the repair or physical condition of said fixtures and equipment. The letter also stated that upon approval of the title and the obtaining of necessary permits “we will get in touch with you further toward closing.” Immediately following the signature of the purchaser on said letter appears: “ACKNOWLEDGED and AGREED TO This 7th day of March, 1958, Tom A. Ash-more Madelyn Ashmore.” The vendors mailed the original thereof to the purchaser.

The latter part of March Busby telephoned to Ashmore in Lawton and they agreed to meet in Joplin on April 16, 1958, to close the transaction.

The concrete block building, furniture and fixtures were destroyed by fire on April 7, 1958, without fault of either party.

Skelly’s Kansas City headquarters advised Busby, who was in St. Joseph, on April 7 of the fire. The next day Busby telephoned Ashmore from Kansas City. In this conversation Ashmore said he had insurance on the building and fixtures, naming the company in Kansas City carrying it. Asked on cross-examination whether he told Ash-more the fire would have no effect on the deal, Busby answered: “I told him absolutely not, we would go through with our deal. Q. Just like it was? A. Sure, just like this contract, sir, we’re obligated, we can’t get out of it.” Busby called the insurance company and was informed there was $10,000 insurance on the building and $4,00.0 on the fixtures. He reported this to the purchaser’s legal department. Then, aTter research, the legal department concluded that Skelly was entitled to have the insurance on the building applied on the purchase price. The closing papers were prepared accordingly.

The closing of the transaction was considered by the parties on April 15, 16 and 17. Busby and Ashmore met on the evening of the 15th. Mr. Winbigler of Skelly’s legal department arrived on the 16th. They informed Ashmore they were there to close the purchase of the property; that Skelly thought it was entitled to the insurance proceeds on the building and would like an assignment of the insurance proceeds. When Ashmore disagreed, they informed him Skelly would close the deal and pay him the contract price but would not waive its rights to the insurance proceeds in so doing. Ashmore would not agree to this. They then went to Mr. Foulke’s office and informed him of the situation. Mr. Foulke told them he needed time to check into the matter before he could advise his client. Busby and Winbigler returned to Kansas City.

By letter dated April 26, 1958, the Ash-mores notified Skelly that the “option agreement” was rescinded “because it was given without consideration and is therefore not binding on us and for the further reason that you have refused to complete the purchase unless we reduce the agreed price, which constitutes a breach of the terms of the agreement.”

A month or so later the Phoenix Insurance Company, under the standard mortgage clause, paid the Bank of Neosho the balance due on the vendors’ notes, $7,242.46, and $2,757.54, the balance of the $10,000 insurance on the building, to the vendors, and also paid the vendors the $4,000 insurance carried on the furniture and fixtures.

This purchaser’s claims are founded on the contract of sale in its letter of March 4, 1958, and the option therein referred to, which letter was “acknowledged and agreed to” by the vendors. Said claims are not based on. a mere option to purchase where the improvements on the property were damaged prior to the purchaser’s exercise of the- option. Vendor and Purchaser, 55 Am.Jur., § 27, p. 492 ; 91 C.J.S. Vendor & Purchaser § 4, p. 832; Annotations, 65 A.L.R.2d 989 ; 23 A.L.R. 1225.

The vendors say that the letter and option were prepared by the purchaser and ambiguities and doubts therein are to be resolved in favor of the vendors; that the purchaser paid no consideration for the option or the three extensions; that specific performance will result in inequity, hardship or loss to vendors (2 Restatement, Contracts, § 367; 81 C.J.S. Specific Performance § 40, p. 512; Miller v. Coffeen, 365 Mo. 204, 280 S.W.2d 100, 103), and that the trial •court’s decree of specific performance constitutes an abuse of discretion (2 Restatement, Id., § 359). It is stated that, since there was no binding contract between the 'parties prior to the letter of March 4, this letter was only an offer to purchase under the terms and conditions in the original option and said letter, which vendors could accept or reject; that the vendors retained possession and the option contained four or more conditions and the letter added others, and because of these “suspensive conditions” (55 Am.Jur., Vendor and Purchaser, § 401, p. 822) the plain intention of the parties was that the purchaser was not to be bound until all these contingencies were met and no specifically enforceable contract existed on April 7, the date of the fir.e.

We are not impressed with the vendors’ broad position that no valid enforceable contract ever existed. The principal suspensive conditions under the option authorized the purchaser to withdraw its acceptance of the option “before the consummation of purchase by payment of the full purchase price” if, sufficiently stated, the purchaser be unable to secure the proper licenses, consents or permits for the erection, maintenance and operation of a service station of a type and according to a ground plan of its choice on the premises, or if any such licenses, consents or permits be revoked, or if the purchaser be enjoined from erecting and operating a service station on said premises. The option called for an abstract showing a merchantable title in the vendors, and the letter of March 4 stated: “Upon approval of title by our Legal Department and our obtaining all necessary permits, we will get in touch with you further toward closing.” There was no objection to this condition in the letter and the parties made it definite by orally agreeing the last part of March upon April 16 for the closing date. Under the mentioned suspensive conditions, as well as others of less importance, when the vendors “acknowledged and agreed to” the contract of sale, the purchaser could not act arbitrarily, capriciously or in bad faith in invoking said provisions of the contract; and in consideration of the mutual promises a mutually enforceable contract of sale arose. Cummins v. Dixon, Mo., 265 S.W.2d 386, 393 [5, 13], 47 A.L.R.2d 441; Herzog v. Ross, 355 Mo. 406, 196 S.W.2d 268, 271 [7], 167 A.L.R. 407; Fullington v. Ozark Poultry Supply Co., 327 Mo. 1167, 39 S.W.2d 780, 782 [2-4]; Underwood Typewriter Co. v. Century Realty Co., 220 Mo. 522, 119 S.W. 400, 403, 25 L.R.A.,N.S., 1173. And see German v. Gilbert, 83 Mo.App. 411, 417, 418; 2 Restatement, Contracts, § 376, comment a, § 372(1), comment a. None of the suspensive conditions entered into the vendors’ failure to close the sale on April 16 or their rescission of the contract on April 26. The vendors’ only objection to completing the transaction was, as stated in their letter of rescission, “that you have refused to complete the purchase unless we reduce the agreed price,” which, of course, refers to the purchaser’s claim to the $10,000 insurance proceeds. Mr. Ash-more testified that the only thing that held up the closing of the transaction was Skelly Oil Company’s claim to the insurance proceeds.

A further matter concerns the Bank of Neosho, its deeds of trust and the standard mortgage clause of the fire insurance policy under which said mortgagee received $7,242.46 of the insurance proceeds. The standard mortgage clause may be an independent contract between the insurer and the mortgagee (Trust Company of St. Louis County v. Phoenix Ins. Co., 201 Mo.App. 223, 210 S.W. 98, 102 [4]), but it was not an entirely disconnected contract in this case as a recovery by the mortgagee paid the debt of the mortgagors secured by this property and inured as much .for the mortgagors’ benefit as if they had recovered the loss and applied it otherwise (Swihart v. Missouri Farmers Mut. T., C. & W. Ins. Co., 234 Mo.App.998, 138 S.W.2d 9, 13 [3, 4]). The Bank of Neosho has been paid without objection by either party and has no interest in the subject matter of this litigation. If at one time the mortgagee was a proper party to the suit (Swihart case, supra [6]), there was no objection in the pleadings to its nonjoinder and the fact does not now invalidate any judgment entered or to be entered in this cause (Ray v. Wooster, Mo., 270 S.W.2d 743, 753 [18, 19]).

The contract of sale here involved contained no provision as to who assumed the risk of loss occasioned by a destruction of the building, or for protecting the building by insurance or for allocating any insurance proceeds received therefor. When the parties met to close the sale on April 16, the purchaser’s counsel informed vendors and their attorney he was relying on Standard Oil Co. v. Dye, 223 Mo.App. 926, 20 S.W.2d 946, for purchaser’s claim to the $10,000 insurance proceeds on the building. Purchaser made no claim to the $4,000 paid vendors for the loss of the furniture and fixtures. It is stated in 3 American Law of Property, § 11.30, p. 90, that in the circumstances here presented at least five different views have been advanced for allocating the burden of fortuitous loss between vendor and purchaser of real estate. We summarize those mentioned: (1) The view first enunciated in Paine v. Meller (Ch. 1801, 6 Ves. Jr. 349, 31 Eng. Reprint 1088, 1089) is said to be the most widely accepted; holding that from the time of the contract of sale of real estate the burden of fortuitous loss was on the purchaser even though the vendor retained possession. (2) The loss is on the vendor until legal title is conveyed, although the purchaser is in possession, stated to be a strong minority. (3) The burden of loss should be on the vendor until the time agreed upon for conveying the legal title, and thereafter on the purchaser unless the vendor be in such default as to preclude specific performance, not recognized in the decisions. (4) The burden of the loss should be on the party in possession, whether vendor or purchaser, so considered by some courts. (5) The burden of loss should be on the vendor unless there is something in the contract or in the relation of the parties from which the court can infer a different intention, stating “this rather vague test” has not received any avowed judicial acceptance, although it is not inconsistent with jurisdictions holding the loss is on the vendor until conveyance or jurisdictions adopting the possession test. As to the weight of the authority, see also 27 A.L.R.2d 448; Tiffany, Real Property, 3rd ed., § 309.

We do not agree that we should adopt the arbitrary rule of Paine v. Meller, supra, and Standard Oil Co. v. Dye, supra, that there is equitable conversion from the time of making a contract for sale and purchase of land and that the risk of loss from destruction of buildings or other substantial part of the property is from that moment on the purchaser. Criticisms of this rule by eminent authorities have been set out in the dissenting opinion of STORCKMAN, J., herein and will not be repeated here.

We take the view stated in an article on Equitable Conversion by Contract, 13 Columbia Law Review 369, 386, Dean Harlan F. Stone, later Chief Justice Stone, in which he points out that the only reason why a contract for the sale of land by the owner to another operates to effect conversion is that a court of equity will compel him specifically to perform his contract. He further states: “A preliminary to the determination of the question whether there is equitable ownership of land must therefore necessarily be the determination of the question whether there is a contract which Can be and ought to be specifically performed at the very time when, the court is called upon to perform it. This process of reasoning is, however, reversed in those jurisdictions where the ‘burden of loss’ is cast upon the vendee. The question is whether there shall be a specific performance of the contract, thus casting the burden on the vendee, by compelling him to pay the full purchase price for the subject matter of the contract, a substantial part of which has been destroyed. The question is answered somewhat in this wise: equitable ownership of the vendee in the subject matter of the contract can exist only where the contract is one which equity will specifically perform. The vendee of land is •equitably entitled to land, therefore the vendee may be compelled to perform, although the vendor is unable to give in return the performance stipulated for by his contract. The non sequitur involved in the proposition that performance may be had because of the equitable ownership of the land by the vendee, which in turn depends upon the right of performance, is evident. The doctrine of equitable conversion, so far as it is exemplified by the authorities hitherto considered, cannot lead to the result of casting the burden of loss on the vendee, since .the conversion depends upon the question whether the contract should in equity be performed. In all other cases where the vendee is treated as the equitable owner of the land, it is only because the contract is one which equity first determines should be specifically performed.

“Whether a plaintiff, in breach of his contract by a default which goes to the essence, as in the case of the destruction of a substantial part of the subject matter of the contract, should be entitled to specific performance, is a question which is answered in the negative in every case except that of destruction of the subject matter of the contract. To give a plaintiff specific performance of the contract when he is unable to perform the contract on his own part, violates the fundamental rule of equity that * * * equity will not compel a defendant to perform when it is unable to so frame its decree as to compel the plaintiff to give in return substantially what he has undertaken to give or to do for the defendant.

“The rule of casting the ‘burden of loss’ on the vendee by specific performance if justifiable at all can only be explained and justified upon one of two theories: first, that since equity has for most purposes treated the vendee as the equitable owner, it should do so for all purposes, although this ignores the fact that in all other cases the vendee is so treated only because the contract is either being performed or in equity ought to be performed; or, second, which is substantially the same proposition in a different form, the specific performance which casts the burden on the vendee is an incident to and a consequence of an equitable conversion, whereas in all other equity relations growing out of the contract, the equitable conversion, if it exists, is an incident to and consequence of, a specific performance. Certainly nothing could be more illogical than this process of reasoning.” (Emphasis ours.)

For these reasons, we do not agree with the rule that arbitrarily places the risk of loss on the vendee from the tíme the contract is made. Instead we believe the Massachusetts rule is the proper rule. It is thus stated in Libman v. Levenson, 236 Mass. 221, 128 N.E. 13, 22 A.L.R. 560: When “the conveyance is to be made of the whole estate, including both land and buildings, for an entire price, and the value of the buildings constitutes a large part of the total value of the estate, and the terms of the agreement show that they constituted an important part of the subject matter of the ■contract * * * the contract is to be construed as subject to the implied condition that it no longer shall be binding if, before the time for the conveyance to be made, the buildings are destroyed by fire. The loss by the fire falls upon the vendor, the owner; and if he has not protected himself by insurance, he can have no reimbursement of this loss; but the contract is no longer binding upon either party. If the purchaser has advanced any part of the price, he can recover it back. Thompson v. Gould, [supra] 20 Pick. [37 Mass.] 134, 138. If the change in the value of the estate is not so great, or if it appears that the buildings did not ■constitute so material a part of the estate to be conveyed as to result in an annulling ■of the contract, specific performance may be •decreed, with compensation for any breach ■of agreement, or relief may be given in ■damages.” (Emphasis ours.) See also Gillis v. Bonelli-Adams Co., 284 Mass. 176, 187 N.E. 535. An extreme case, showing the unfairness of the arbitrary rule placing .all loss on the vendee, is Amundson v. Severson, 41 S.D. 377, 170 N.W. 633, where three-fourths of the land sold was washed away by the Missouri River (the part left being of little value) and the vendor brought ■suit for specific performance. Fortunately for the vendee, he was relieved by the fact that the vendor did not have good title at the time of the loss, although the vendor had procured it as a basis for his suit. However, if the vendor had then held good title •eyen though he did not have the land, the vendee would have been required to pay the full contract price under the loss on the ■purchaser rule. (Would the vendee have been any better off if the vendor had good title from the start but did not have the land left to convey?) The reason for the Massachusetts rule is that specific performance is based on what is equitable; and it is not equitable to make a vendee pay the vendor for something the vendor cannot give him.

However, the issue in this case is not whether the vendee can be compelled to take the property without the building but whether the vendee is entitled to enforce the contract of sale, with the insurance proceeds substituted for the destroyed building. We see no inequity to defendants in such enforcement since they will receive the full amount ($20,000.00) for which they contracted to sell the property. Their contract not only described the land but also specifically stated they sold it “together with the buildings, driveways and all construction thereon.” While the words “Service Station Site” appeared in the caption of the option contract and that no doubt was the ultimate use plaintiff intended to make of the land, the final agreement made by the parties was that plaintiff would take it subject to a lease of the building which would have brought plaintiff about $6,150.00 in rent during the term of the lease. Moreover, defendants’ own evidence showed the building was valued in the insurance adjustment at $16,716.00 from which $4,179.00 was deducted for depreciation, making the loss $12,537.00. Therefore, defendants are not in a very good position to say the building was of no value to plaintiff. Furthermore, plaintiff having contracted for the land with the building on it, the decision concerning use or removal of the building, or even for resale of the entire property, was for the plaintiff to make. Statements were in evidence about the use of the.building and its value to plaintiff made by its employee who negotiated the purchase but he was not one of plaintiff’s chief executive officers nor possessed of authority to bind its board of directors. The short of thé matter is that defendants will get all they bargained for; but without the building or its value-plaintiff will not.

We therefore affirm the judgment and decree of the trial court.

EAGER, LEEDY and HOLLINGS-WORTH, JJ., concur. STORCKMAN, J., dissents in separate opinion filed. ' WESTHUES, C. J., and DALTON, J., dissent and concur in separate dissenting opinion of STORCKMAN, J. '