Clark v. American Developing & Mining Co.

MR. COMMISSIONER CALLAWAY prepared the opinion for the court. This controversy arose over an option contract executed by the defendant, as party of the first part, to the plaintiff, as party-of the second part, concerning the lease and sale of the Golden Sunlight group of mines. By the terms of the contract, which was dated January 31, 1894, the plaintiff, at his option, was to pay the defendant $500,000 as- the purchase price of the property, in installments falling due at stated intervals; the last one being due October 1, 1896. A payment of $50,000 ■was due April 1, 1895. The plaintiff had the right to make any or all of the payments prior to the stipulated periods. It was provided that the defendant should deposit in escrow with the Montana National Bank deeds for the property, conveying all its right, title and interest therein to John E- Searles and — 472 — Samuel Thomas, or either of them, as directed by the plaintiff. Paragraphs four and five of the contract read as follows: “(4) It is expressly understood that in the event of failure by the party of the second part, or by his associates or assigns, to make the payment of any of the installments upon the dates mentioned in this agreement, then and in that event the said deed or deeds, covering all of said mines, mining claims, lands and properties mentioned in said Schedule A, are to be returned to the said party of the first part; and peaceful possession of all of said mines, mining claims, lands and properties shall in that event be surrendered by the party of the second part, or by his associates or assigns, to the said party of the first part, together with all the improvements, appurtenances, machinery, mills and fixtures placed upon said mines, mining claims, lands and properties by the party of the second part, or by his associates or assigns, upon demand being made for such possession by the said party of the first part — it being further understood that, in the event of such failure to pay any of said installments as herein provided, and possession of said properties being demanded by said party of the first part., then and in that event all the said improvements, appurtenances, machinery, mills and fixtures placed upon said property by the said party of the second part, or by his associates and assigns, shall revert to the said party of the first part. “(5) That upon the payment of $30,000 upon March 10, 1894, as herein' provided, the party of the second part is to have immediate and undisturbed possession of all of said mining claims, lands 'and properties, with privilege to work the said mines, mining claims, lands and properties, to develop the same, and to mine and ship ores, and to receive the proceeds thereof, for the benefit of himself, or his associates or assigns; and the said party of the second part, his associates or assigns, are to receive all the product of said mines, mining claims, lands and properties for their own use, until failure occurs in the payment of any of said installments; providing, however, that the provisions of Section 6 of this agreement shall have first .been — 473 — complied with. It is further understood that the party of the second part shall have the right to cut and use any trees upon said premises for improvements, or for mining purposes, or for fuel, in the operation of said properties.” Paragraph 6 provided that plaintiff should “diligently take the usual steps toward patenting such of said mining claims as are now unpatented,” and should also expend from the net proceeds received from the shipments of ores between March 10, 1894, and October 1, 1894, the sum of $40,000 in the erection of reduction works and the necessary equipment for conducting mining on said property. Plaintiff was to have the use of all mining machinery and appliances then on the property, which were to be transferred as a part thereof. In pursuance of this contract the plaintiff entered into possession of the premises and property on March 10, 1894, and continued in possession until April 2, 1895. At plaintiff’s direction, defendant executed and placed in escrow deeds to the property mentioned in the contract, by the terms of which deeds the property was conveyed to John E. Searles. Subsequent to the execution of the contract Searles acquired an interest in. it from the plaintiff, and the principal part of the money required to make the improvements spoken of and the payments mentioned below was advanced by him. While plaintiff was in possession of the premises he mined and extracted therefrom ores of the aggregate value of $83,110.27, the net proceeds of which were invested in the property, for the purpose of developing and improving the same, and in the cost of mining and extracting said ores. The defendant did not admit that such expenditures were wisely incurred, or that the mines were operated to the best advantage. Plaintiff made the first four payments provided for in the contract, amounting to $165,000. On March 28, 1895, the condition of the mine being disappointing to plaintiff, he applied to defendant for thirty days’ grace in which to make the payment due April 1st following. March 29th the trustees of defendant held a meeting, at which it was — 474 — resolved tbat they “do not accept tlie modification ashed, and that the agreement of January 31, 1894, with W, J. Clark, for sale of the Golden Sunlight groups to John E. Searles, be adhered to.” The following telegraphic messages were then sent and received on the dates indicated therein: “New York, March 31, 1895. To Bernard MacDonald, care. American Developing & Mining Co., Butte, Montana: My principal dissatisfied Avith recent reports from the mine; but, if thirty days’ extension granted, he Avill go out and investigate personally, and I hope to persuade him to go on. AnsAver, care-Ballou, 10 Wall Street. Wm. Clark.” “Butte, Mont., March 31, 1895. ■ Wm. J. Clark, Care Bal-lou, 10 Wall Street, New York: Default, restore property to company, and we will treat honorably Avith your principal. Bernard MacDonald, Pres’t.” “New York, April 1, 1895. To Bernard MacDonald, Care American Developing & Mining Company, Butte, Mont.: Principal refuses to go to Montana unless extension granted. You stand AAÚth me. Think we can carry this through. You AA'ill find us honorable. AnsAver. Wm. J. Clark.” “Butte, Mont.,- April 1, 1895. To Wm. J, Clark, Care Geo. W. Ballou, 10 Wall Street, NeAv York: Company cannot grant your request. Your principal is hereby assured of honorable treatment if default is made. Bernard MacDonald, Pres’t.” “Butte, Mont., April 1, 1895. To John E. Searles, 117 Wall Street, New York: Replying to Clark’s telegraphic solicitation foi* thirty days’ grace on April payment, Ave Avircd him that Avould not be granted; but, if default was made, A\-e Avould"deal honorably Avith his principal. Reassuring you on this point, and that the'property is one of the most valuable in Montana, Ave ask you to investigate mines and past management, promising you equitable treatment in case you then desire reconstruction: Bernard MacDonald, Pres’t.” ■The plaintiff had cognizance of the telegram to Searles. It Avas never answered. All of the messages sent by defendant — 475 — ■were received in New York City on tbe same days they were dated and prior to tbe close of business by tbe bankers of that city on tbe respective days when received. No further or other communications were bad between tbe plaintiff and defendant after April 2, 1895, as shown by tbe record. Searles was able to pay tbe sum of $50,000 on April 1, 1895, but neither he nor plaintiff ever made tbe payment due on that day. April 2, 1895, the defendant demanded and received from tbe Montana National Bank tbe deeds which bad theretofore been placed in escrow, and on tbe same day demanded and received from the plaintiff possession of tbe properties therein described, thereby terminating tbe contract. May 19, 1896, William J. Clark, tbe plaintiff, began this suit, claiming that tbe defendant had rescinded and abandoned tbe contract to which tbe plaintiff consented; but, notwithstanding such rescission and abandonment, tbe defendant bad failed and refused to repay him, tbe sum of $165,000 theretofore paid on tbe contract. Plaintiff prayed judgment against defendant for that sum, together with interest thereon at tbe rate of 10 per cent, per annum from April 2, 1895,. and for costs of suit. Defendant answered, denying that it bad rescinded or abandoned the contract, but admitted that it refused to repay tbe sum of $165,000, or any part thereof. Then followed this allegation in the answer: “And defendant says that tbe plaintiff failed and refused, and still fails and refuses, to pay to it tbe sum of $50,000, which by tbe terms of the contract in tbe complaint set forth became due and payable on April 1, 1895, and failed and refused, and still fails and refuses, to pay to tbe defendant any sum of money whatsoever; that on tbe 1st day of April, 1895, defendant was, ever since has been, and now is ready, able and willing to proceed with tbe aforesaid contract, upon tbe payment by tbe plaintiff to it of the sums in tbe said contract specified-to be paid by tbe plaintiff to the defendant.” All of tbe foregoing appears from tbe pleadings and statement of facts agreed to by tbe parties, upon which tbe trial was bad. The court rendered judgment for tbe plaintiff in accord476 anee witli tbe prayer of the complaint. Defendant moved for a new trial, which was denied. From such judgment, and the order denying the motion for a new trial, defendant prosecutes this appeal. Rescission is the unmaking of a contract, requiring the same concurrence of wills, as that which made it, and nothing short of this will suffice. (Bishop on Cbntracts, Sec. 812; Robinson v. Pogue, 86 Ala. 257, 5 South. 685.) There is a wide difference between the rescission of a contract and its mere termination or cancellation. (Winton v. Spring, 18 Cal. 452; Weil v. Jones, 53 Cal. 46.) “It is well settled that a technical rescission of the contract has the legal effect of entitling each of the parties to be restored to the condition in which he was before the contract was made, so far as that is possible, and that no rights accrue to either by force of the terms of the contract. But, besides technical rescission, there is a mode of abandoning a contract as a live and enforceable obligation which still entitles the party declaring its abandonment to look to the contract to determine the compensation he may be entitled to under its terms for the breach which gave him the right of abandonment.” (Hayes v. City of Nashville, 80 Fed. 641.) “Such an abandonment is not technically a rescission of the contract, but is merely an acceptance of the situation which the wrong-doing of the other party has brought about” (Anvil Mining Co. v. Humble, 153 U. S. 540, 14 Sup. Ct. 876, 38 L. Ed. 814.) Did the parties intend to rescind the contract, so as to place each other m statu quo\? In determining whether such a rescission has taken place, courts look, not only to the language of the parties, but to all the circumstances, including the effect of a complete rescission upon the rights of those concerned, and the probability or improbability of their having desired to effect such a result. (Hayes v. City of Nashville, 80 Fed. 641, 26 C. C. A. 59.) We have seen that the plaintiff asked for thirty days’ grace on March 28th in which to make the payment due three days later; that the defendant refused the request, demanding adherence to the contract; and that plaintiff then sent — 477 — the telegram of March 31st, saying his principal was dissatisfied with the reports from the mines, but, if thirty days’ extension be granted, his principal wonld “go out and investigate personally,” and plaintiff hoped “to persuade him to go on.” This was tantamount to saying that, if the thirty days’ extension he not granted, the payment would not be made. Then followed the telegram in which defendant said, “Default, restore property to company, and we will treat honorably with your principal.” It was-quite natural for the defendant, in case the plaintiff abandoned the contract, to desire an immediate and peaceable possession of the premises. Common experience has taught that, while the peaceable possession of leased premises is promised to the lessor, it often happens that he has to resort to legal process in order to repossess himself of the property, and finds that after default has been made, and before he regains possession, much valuable property in the mkture of fixtures has disappeared. / There was no promise of honorable treatment held out to plaintiff in the telegram just quoted. The promise of honorable treatment was to his principal. The defendant must have assumed that the plaintiff would be unable to proceed, and assurance was made that, in case plaintiff made default and restored the property, defendant would deal honorably with Searles, the man to whom the deeds were made, and who- had furnished the principal part of the money. The language of the telegram excluded plaintiff from consideration. Plaintiff evidently so read it, for he replied: “Principal refuses to go to Montana. You stand with me. Think we can carry this through. You will find us honorable.” The defendant remained obdurate. It said: “Company cannot grant your request. Your principal is hereby assured of honorable treatment if default is made.” And, concluding the correspondence, observe the telegram sent to Searles, telling him the company would not grant any further time-in which to make the payment due April 1st, assuring him of honorable treatment, of the value — 478 — of: tbe property, asking bim to investigate tbe mines and past management, and promising bim equitable treatment in case be desired a “reconstruction.” Tbe inducements, if any were beld out, were to Searles, and none whatever were made to plaintiff. He was excluded in no uncertain terms. Tbe suggestion that Searles investigate tbe past management of tbe mines was by no means flattering to plaintiff. As to wbetber Searles ever did desire a “reconstruction,” tbe record is silent. So far as we are able to tell, the defendant may bave accorded to bim the honorable, treatment promised. He may be well satisfied. He is not a party to this suit, and there is no showing that Clark is acting in bis behalf, or has succeeded to bis rights in the premises. It is apparent that Clark was merely Searles’ agent, and as such agent be has no right to recover bis principal’s money. No communications between plaintiff and defendant appear after April 2d. No further action by plaintiff appears until May 19, 1896, when be commenced this suit. "We are forced to tbe conclusion that under no phase of tbe case was any inducement held" out to plaintiff, nor can we see, from anything in tbe record, any intention on part of defendant to rescind tbe contract. On tbe contrary, it stood upon tbe contract,' insisted upon it, and tbe only inducement beld out, if any there was, was tbe assurance of honorable treatment to Searles, and a “reconstruction” of tbe contract, should be desire it; and with this., as we bave seen, plaintiff has in no way connected himself. This view is strengthened when we examine tbe nature of the contract. Tbe parties were dealing with property subject to “sudden, frequent and great fluctuations in value.” (Waterman v. Banks, 144 U. S. 394, 12 Sup. Ct. 646, 36 L. Ed. 478.) They entered into’a. contract respecting its working and sale. The defendant, gave the plaintiff tbe exclusive right to purchase within tbe time limited in tbe contract,, and placed bim in possession, giving bim tbe use of its mining machinery, the right to cut and use its timber, and to work the mines and ex — 479 — tract tlie ores tberefrom as he should see fit. It took the risk of having its property ruined by unskillful work, and deprived of its most valuable ore bodies. When the mining property was leased, its showing of values was so great that plaintiff was willing to agree to $500,000 as its purchase price. In the vicissitudes of mining this showing might have disappeared before the plaintiff had made the second payment, and he could have exercised his election to abandon the property at once. For these risks the defendant exacted certain payments. Without doubt these payments were required in the nature of an indemnity or of compensation. The plaintiff on his part entered upon a mining venture— an enterprise fraught with hazard, but holding out the promise of rich returns. He took the risk of losing his investment, but presumably it was his expectation to extract from the mine more than sufficient to pay its price, and it was entirely within the realm of probability that he would uncover ore bodies worth millions with his first few months of operation. In this event ho could hold defendant to its bargain. It could not repudiate the contract, as the plaintiff could. The plaintiff could enforce the specific performance of the contract by complying with its terms, but the defendant could not. Practically it had fulfilled all the conditions imposed upon it. Deeds conveying title to the property were in the bank. The contract was unilateral, and by its express terms time was of its essence. “There is a decided distinction between an option to purchase, which may be exercised or not by the prospective purchaser, and an absolute contract of sale, wherein one of the parties agrees to sell and the other to buy certain property, the sale to be completed within an agreed time. In the latter case, of course, the mere lapse of time, with the contract unperformed, does not entitle either party to refuse to complete it, and therefore time is not of the essence of the contract. But where the contract is merely an option, generally without consideration, and especially as applied to mining property, of course, as pointed out in the last preceding sections, — 480 — time is of its essence, and tbe prospective purchaser must act promptly within the time specified, or his right to purchase is gone.” (Snyder on Mines, Sec. 1378. And see Lindley on Mines, Sec. 839; Settle v. Winters, 2 Idaho, 215, 10 Pac. 216; Pomeroy on Contracts, Sec. 387; Pry on Specific Performance, 3d Ed., See. 1052.) Whether partial payments made under absolute contracts of sale can be recovered by the prospective vendee upon a rescission of the contract is a question upon which the authorities are somewhat divided; but as to option contracts generally the rule is thus stated in Warvelle on Vendors, Sec. 824: “An option of purchase rests on different grounds, and is governed by different rules, from those which obtain in case of bilateral contracts. Where the time for acceptance is not limited, it must, if given for a consideration, remain open for a reasonable time, to be determined by all the circumstances of the case; but if the option reserved is to purchase at any time before a certain day for a certain sum, to be paid on demand for deed, time is of the essence of the contract, and equity cannot relieve after the time, nor require the repayment of money paid to secure the option.” And we think that because of the peculiar conditions surrounding contracts for the sale of mining property, where the contract is unilateral, or in the nature of an option, providing for partial payments upon the purchase price at stated times, it is the manifest intention of the parties that the vendor shall retain all payments made, unless it is directly specified to the contrary ; and although the contract be mutually rescinded, unless it affirmatively appears from the contract of sale, or in the agreement to rescind, that the vendee is to have the payments made by him refunded, he cannot recover them. In this case plaintiff contends that, as there is no provision in the contract authorizing defendant to retain the payments, it may not do so. In addition to what we have said above, we quote the following from Reddish v. Smith, 10 Wash. 178, 38 Pac. 1003, 45 Am. St. Rep. 781, in which a similar argument was made: “We do not think this is a legitimate construction — 481 — of tbe contract. While it is true that the courts will not supply language to create a forfeiture, where the forfeiture is not specially provided for by the parties themselves, yet it seems to us that it was the clear, unequivocal intention of the parties to this contract, as expressed by the contract, that the payments made by the appellants should be forfeited, in case the respondents elected so to do, upon the nonperformance of the contract by the appellants. The option of forfeiture is for the benefit of 'the vendor; but it would be difficult to conceive what benefit would accrue to the vendor in a case of this kind, if he were not allowed the benefit of the payments which had been made.” And in Lawrence v. Miller, 86 N. Y. 131, it is said: “The plaintiff in the action before us sues for the whole amount of the money paid by the vendee. The defendant came by it rightfully, in pursuance of a contract lawfully made, between competent parties. He has made no breach of that contract. He has failed in no duty to the vendee. Wherefore, then, should he give up that which was rightfully his own ? When and whereby did it cease to be his, and to be due to the vendee ? If the contract had been kept by both parties, the money paid would still be his of right.” Another insuperable obstacle appears in the way of plaintiff’s recovery. Hnder the general rule, following the rescission of a contract for the sale of real estate, the parties must be placed practically in siatu qua. How can the defendant be placed in statu quo if the $165,000 be returned to plaintiff? The ore bodies which were in place in the mine when the plaintiff took possession have been exhausted to' the extent' of $83,110.27. Whether the plaintiff’s working benefited the mine in any particular is not disclosed by the record. It is not necessary to discuss this subject further. We are therefore of the opinion that the judgment and order should be reversed, and the cause remanded for a new trial. Per Curiam. — Por the reasons given in the foregoing opinion, the judgment and order are reversed, and the cause is remanded for a new trial.