McFarland v. Gregory

WATERMAN, Circuit Judge. Plaintiffs below were the developers of a real estate project outside Washington, D. C., known as “Arlington Towers.” The project consists of an 18-acre tract of land in Virginia, four multi-story apartment buildings, and a shopping center. In April 1957, plaintiffs were required, because of financial difficulties, to sell all the issued outstanding stock and debentures of the corporation developing the project to persons known as the Kaufman Group. As part of the sales agreement, plaintiffs were given, at an agreed price, a call on the securities or an option to repurchase them within one year. Thereafter, plaintiffs entered into two agreements with defendants below, the Gregory group. The first, or main, agreement provided for the transfer of the call to, and its exercise by, the defendants, in return for which plaintiff McFarland was to receive $250,000 in two installments. That agreement is not involved on this appeal. The second, or memorandum, agreement provided for certain rights of the parties after defendants’ acquisition of the Arlington securities. For present purposes, the most important provision of this agreement gave plaintiff McFarland the right to receive a share of the profits from the resale of the project if McFarland could find a buyer for the properties, at an agreed price, within 39 months of April 15, 1957. The history of the parties’ relationship under these agreements has been one of continuing dispute, both as to the nature of their obligations and as to their respective performances. In July 1957, when McFarland had approximately 36 months within which to find a buyer, defendants claimed that plaintiffs had breached certain warranties and representations concerning the value of the Arlington properties. Thereupon defendants withheld their further performance under the agreements, including payment of a $150,000 balance on the $250,000 due McFarland. In September 1957, plaintiffs, citizens of the Commonwealth of Virginia, commenced this diversity action against defendants, New York State residents and others, in the United States District Court for the Southern District of New York, seeking reformation of - the agreements and, when reformed, their specific performance. Defendants counterclaimed, alleging damages for breach of warranty. After a trial below, Judge Dimock ruled, on June 30, 1961, that plaintiffs were entitled to specific performance and held that no warranties or representations in the sale of the Arlington properties had been breached. The judgment and decree of specific performance, entered on October 11, 1961, also provided that McFarland’s time to find a buyer for the Arlington properties should be extended from July 15, 1960, the original expiration date under the contract, to June 30, 1964. Defendants did not appeal from this portion of the decree which was framed, as Judge Dimock stated in his opinion of June 30, 1961, to provide plaintiffs “a period sufficiently long to give McFarland time for performance equal to that which was still available to him on July 25, 1957, under the terms of the agreement.” During the spring of 1962, new disagreements arose between the parties concerning McFarland’s rights under the agreements and the decree of specific performance. McFarland contended, and defendants denied, that as an implied condition precedent to his right to find a buyer for an individual building, or some of the buildings, in the Arlington complex, defendants should promptly separate, or obtain commitments to separate, the project mortgages and ground lease as- between various units of the project. McFarland also demanded that defendants promptly discharge, or obtain [739] commitments to discharge, all liens and encumbrances on the apartment buildings. On March 2, 1962, defendants made a motion before Judge Dimock for further relief at the foot of the original decree to dispose of the newly-arisen disputes indicated above. In his answering papers, plaintiff McFarland requested construction of various additional provisions of the agreements, including a provision relieving defendants of any obligation to sell, “unless it has been determined to the satisfaction of the counsel of the Gregory Group that profits realized in connection with the sale would, upon distribution thereof to the individual stockholders of Arlington, be taxable to them * * * as capital gain and not as ordinary income.” In an opinion dated June 19, 1962, Judge Dimock ruled with defendants and rejected plaintiff McFarland’s interpretation of the agreement relative to the separation of the mortgages and lease and the discharge of all liens and encumbrances. The court further ruled, however, that defendants should forthwith seek and furnish the required tax opinion rather than delaying until a buyer for the Arlington properties had been produced by McFarland. The supplemental judgment and decree, entered November 14, 1962, further provided that McFarland’s rights to find a buyer for the Arlington properties and to share in the profits of the sale should be extended for an additional period equal to the number of days, “(i) in the period from March 2, 1962, the date of defendants’ motion herein, to the date of the furnishing of an opinion of tax counsel * * *; and “(ii) if an appeal is taken from this judgment and decree, in the period between the date of this Judgment and Decree and the date of the final disposition of such appeal, or, if no such opinion is furnished until thereafter, the date of the furnishing of such opinion.” Defendants prosecute this appeal from the provision of the supplemental decree just quoted which extends the time of McFarland’s rights under the agreements. They contend that the extension was a gross abuse of discretion and that it granted to McFarland rights different in kind and quality from those provided by the contract of the parties. We affirm the judgment and decree below, subject to a modification to be discussed hereafter. In a contract action, the determination whether specific performance shall be decreed rests in the sound discretion of the trial court. 2 Restatement, Contracts § 359(1). In framing such a decree the performance that it requires need not be identical with that promised in the contract. It is within the bounds of judicial discretion, therefore, to extend the time within which an obligation may be performed. Id. at § 359(2); 5 Williston, Contracts § 1424 (rev. ed. 1937); Haener v. Albro, 73 Idaho 250, 249 P.2d 919 (1952); see Lissau v. Smith, 215 Md. 538, 138 A.2d 381, 384385 (1958). Under the contract before us, McFarland was granted a 39-month period during which to find a buyer for the Arlington properties at a price that would permit McFarland to realize a share of the profits from the sale. Defendants defeated that right initially by refusing to perform under the contract. It is conceded, therefore, that Judge Dimock, on June 30, 1961, acted reasonably in extending the time limit on plaintiff's rights from July 15, 1960 to June 30, 1964. On March 2, 1962, twenty-eight months before plaintiff’s rights were to expire, defendants reopened the litigation by making a motion for a further clarification of the contract and of the decree based thereon. By so'doing, defendants again erected an obstacle to the exercise by McFarland of his rights. As a practical matter, that obstacle de [740] feated his rights just as effectively as defendants’ prior refusal to perform under the contract. Prospective buyers of expensive real estate parcels do not offer to purchase a lawsuit or to buy a pig in a poke. If the defendants had been at fault in this second interference with McFarland’s rights, as they had been in the first, the propriety of the second extension of time granted by Judge Dimock could hardly be contested. Fault on the part of defendants was not, however, the basis for the time extension appealed from. Indeed, in these supplemental proceedings, Judge Dimock largely accepted defendants’ interpretations of the agreement and rejected those of the plaintiffs. The second extension of time for the exercise of McFarland’s rights was premised upon the ambiguous nature of the agreement in suit, and Judge Dimock acknowledged the reasonableness of the parties’ conflicting interpretations of their respective obligations thereunder. Therefore, in the absence of record information to the contrary, we must assume that McFarland’s position in the dispute, as well as that taken by the defendants, was taken in good faith. Under these circumstances, to permit a deduction of the period consumed by litigation concerning the substance of plaintiffs’ rights from time allowed for the exercise of the rights would be to place all the risks of the conceded contractual ambiguities upon plaintiffs’ shoulders. By contrast, to extend the expiration date of plaintiffs’ rights would restore plaintiffs to the status quo ante and would subject defendants to no clearly-specified disadvantage.1 We hold, therefore, that Judge Dimock did not abuse his discretion by extending the limit within which McFarland’s rights could be exercised for a period that would equal that consumed in the supplemental proceedings below and for the period required to secure the tax opinion. Although the question is a closer one, we cannot say that Judge Dimock exceeded the bounds of his discretion by also including in the extension of time he ordered a period equal to the time consumed by any appeal the defendants might take from that order. When the decree below was entered, defendants were free to appeal from all of its provisions, from those involving McFarland’s substantive rights as well as from those granting the extension of time within which those rights could be exercised. Moreover, even though defendants elected only to appeal the provisions of the decree extending McFarland’s time, McFarland’s right of “sale” remained clouded by uncertainty concerning the duration of that right. Whether a given offer to purchase will be accepted or rejected by the seller may depend, in part, upon the time available to seek more favorable offers. It is claimed that the language of the decree may be interpreted to extend McFarland’s rights by a period equal to the time (1) from March 2, 1962 to the date of the furnishing of the required tax opinion, in addition to (2) the period from entry of the decree below to the date of final disposition of this appeal. As the tax opinion could be prepared concurrently with the prosecution of this appeal, such an interpretation would, if the opinion were so prepared, unduly extend the time for the exercise of McFarland’s rights. We amend the decree, [741] therefore, to provide for an additional period “equal to the number of days in the period between March 2, 1962, and (1) the disposition of any appeal taken by defendants or (2) the date on which the required tax opinion is provided, whichever is later.” The decree of the district court is modified as provided herein, and, as so modified, is affirmed. Footnotes [1] The primary harm which defendants envision from an extension of the time limit on McFarland’s rights is that “worthless rights' * * * may increase in value to a point where they are valuable.” Such an eventuality, however, would not operate wholly to defendants’ disadvantage. • From the record before us it would appear that defendants’ investment in acquiring the Arlington properties was approximately $1,600,000. Under the terms of the memorandum agreement, defendants were not obligated to sell the Arlington securities unless McFarland could find a buyer willing to pay a price which would yield a profit of $5,500,000 in excess of defendants’ original investment. McFarland was to receive 25% of the amount by which any resale price he obtained exceeded a sum which would yield defendants a profit of $1,500,000 on the original investment.