Lake Phalen Land & Improvement Co. v. Stees

Dickinson, J. On the 11th of January, 1886, Washington M. Stees and his wife, Ann K. Stees, entered into an executory contract with one Stout for the sale and conveyance to the latter of a large tract of land within the corporate limits of the city of St. Paul. This plaintiff, having by assignment succeeded to the interest of Stout, prosecutes this action for a specific performance of the contract. The controversy is as to the obligation of the plaintiff, under the contract, in respect to the payment of interest and of taxes and assessments on the land since the making of the contract. By the terms of the contract the vendors were to- convey by warranty deed upon the performance by the vendee of his part of the — 480 — agreement. The vendee was to pay as tbe purchase price $175,000, as follows: $5,000 cash at the time of the execution of the contract, $45,000 at the time of the execution and delivery of the warranty deed, “and the balance, $125,000, on or before five years after the date hereof, said deferred payment to be secured by promissory note drawing interest from May 1,1886, till paid, at the rate of seven per cent, per annum, payable semiannually, and said note to be secured by purchase-money mortgage on above-described property.” The vendors were to furnish the vendee with an abstract of the title within a reasonable time after the execution of the agreement, and the vendee was to have 30 days thereafter to examine the title and complete the contract. On demand of the vendee within that time, and upon his complying with the terms of the agreement, the conveyance was to be made; but, if the vendee should be in default in making said payments, or in paying interest or taxes, or in respect to other covenants on his part, the agreement was to be void, at the election of the vendors, time being declared to be of the essence of the agreement. The vendee was to pay the taxes for 1885 and all subsequent taxes and assessments. It was further provided: “In case the title to said premises, or any part thereof, be not merchantable, the parties of the first part [vendors] may, at the option of the party of the second part, [vendee,] have a reasonable time to make said title merchantable. But if said title is not and cannot be made merchantable, or if for any other default made by the parties of the first part, the party of the second part elects to declare this agreement void, then and in that case the said $5,000 paid at the time of the execution and delivery of this agreement, as aforesaid, shall be forthwith returned to the said party of the second part. And if said party of the second part shall fail to perform said contract on his part within said period of thirty days, then this contract shall, at the option of the first parties, be at an end, and the said $5,000 paid at the date of these presents shall be forfeited to said first parties.” As required by the contract, $5,000 was paid at the time of its execution, but no more of the purchase price has been paid. A few days after the execution of the contract, abstracts of title were furnished, and upon examination it was discovered, about the 2d of February, 1886, that Stees’ title to a large part of the land was not — 481 — merchantable. Neither party had previously known this fact. Thereafter both parties seem to have considered that there could be no further performance of the contract until the title should be perfected. Neither party tendered further performance, although they do not seem to have determined to wholly terminate or rescind the contract. The vendors remained in possession of the premises, receiving the rents and profits, and set about perfecting their title. While Stees was endeavoring to perfect his title, and in May, 1887, one Lambert commenced an action against him for the recovery of the land, claiming title thereto. This asserted title was based upon the facts which had been found, upon the examination of the abstracts, to render the title of Stees unmarketable. The litigation concerning the title, thus commenced, was carried on until May 2, 1892, when the title was finally adjudged to be in Stees. The property has been used for farming purposes. Its rental value for such purposes has not exceeded $500 a year, while the yearly interest on the $125,000 would be $8,750. During the period while the title remained unsettled, and since January 11, 1889, the plaintiff had paid general taxes on the property for the years 1888, 1889, 1890, and 1891, and has also paid certain city assessments for local improvements on the property. It appears that prior to 1889, and while the title remained unsettled, the vendors insisted that the obligation rested on the vendee to pay the taxes, and declared that if he should fail to pay the same they should elect to avoid the contract. Since the title of Stees was established the parties have been willing to complete the performance of the contract in accordance with their respective claims as to their rights and obligations. 'The controversy now is (1) whether (as the defendants claim) the plaintiff is required by the terms of the contract to pay interest on $125,000 of the purchase price from May 1, 1886, or only (as the plaintiff insists, and as the trial court has decided) from May 2, 1892, when it became possible for the vendors to convey a good title; and (2) whether the .taxes and assessments above referred to, paid by the plaintiff since January, 1889, should have been paid by the vendors, and ought now to be deducted from the unpaid purchase price. The court allowed this deduction in favor of the plaintiff. We shall consider these two questions in their order. — 482 — This was not an absolute contract of sale, nor did the parties treat it as such. The sale was to be contingent upon the title of the vendors being found to be, or being made, merchantable. The contract did not obligate the vendee to accept a conveyance, or to pay the purchase price, or to give his promissory note therefor, unless, nor until, upon examination, the title should be found to be good in the vendors. After the execution of the contract and the payment of the $5,000 earnest money, the further performance of the contract was dependent upon the state of the title. If that should be found to be unmerchantable, the vendee might withdraw from or rescind the proposed sale, and have the $5,000 repaid; or, at his option, the other parties might have a reasonable time to make their title merchantable. Not until the vendors should be able to complete the performance of the contract on their part by the conveyance of such a title was the vendee required to proceed further in the performance on his part. At the time- of such conveyance, and not before, the purchaser was to pay the further sum of $45,000, and to give his promissory note for the “balance” of the purchase price, and to secure the same by a mortgage on the property purchased. It is plain enough that it was not intended that the mortgage back to the vendors should be executed before the conveyance by them to the vendee of the premises to be mortgaged. That such performance by both parties was to be contemporaneous is indicated also from the fact that, while provision is made for the return of the $5,000 in case the sale should not be perfected by reason of the title being defective, there is no provision for the surrender of any note that may have been given, nor for the repayment of any other money. But, apart from these particular features of the contract, it is apparent from its whole terms that it was to be performed by both parties in these respects simultaneously. Birch v. Joy, 3 H. L. Cas. 565. So long as the vendors should be unable to perform, and while the vendee remained at liberty, because of a defective title, which might never be perfected, to withdraw from the contemplated purchase, he was not required either to pay the balance of the purchase money, or to assume an absolute obligation to pay it by giving his note therefor, payable within the definite time named in the contract. The contract was undoubtedly drawn as it is in the expectation — 483 — that the title would be found to be good, or would be made good, within a short time, and that the sale would be perfected, if at all, before or at about the time named for the commencement of interest on the note to be given for the greater part of the purchase price. That time was fixed upon that assumption, and, as we may say, upon the unexpressed condition that such would be the case. But contrary to what the parties contemplated, and hence what was •not explicitly provided for, six years elapsed before it could be determined that the vendors had any title, or that the proposed sale could ever proceed any further. Under these • circumstances, the vendee was not required to treat the transaction as though it were already, or certainly would become, a perfected sale. He could not (as the court found) safely take possession, as though he were already the owner, or certain to become such. He could not venture to improve the property so as to realize the benefits which an owner may derive from such uses of his property as it may most advantageously be put to. The vendors, recognizing*this, did not assume to treat the other party as an absolute purchaser. They remained in possession, and continued to receive such rents and profits as the property in its present condition yielded. In such a case a court of equity will not treat the transaction as though it were an absolute contract of sale, certainly susceptible of specific performance; will not force the possible purchaser, remaining out of possession, into the position of a trustee for the vendor, as respects the purchase money, which he may never become obligated to pay, and charge him with interest thereon, especially where the interest would so greatly exceed the value of the use of the land in its present state. Binks v. Rokeby, 2 Swanst. 222, 225; Carrodus v. Sharp, 20 Beav. 56; Esdaile v. Stephenson, 1 Sim. & S. 122; Jones v. Mudd, 4 Russ. 118; 2 Sugd. Vend. (8th Amer. Ed.) 318, bottom p. 630; Dart, Vend. (5th Ed.) 628, bottom p. 481. See, also, opinion in Stevenson v. Maxwell, 2 Sandf. Ch. 273, although the decision in that ease was reversed (2 N. Y. 408) upon a fact distinguishing that case from this. The defendants can only prevail in their claim of right to recover interest from May, 1886, upon the special agreement relating to that matter. The defect in the vendor’s title necessarily postponed for many years beyond the contemplated period the consummation of the pro — 484 — posed sale. The conveyance, the assuming of the absolute obligation to pay the $125,000, and the giving of the note and mortgage therefor, as well as the determination of the very essential fact whether the purchase was to be made at all, were necessarily suspended or postponed, and became performable only after the lapse of six years. Now performance has become possible, and neither party resists the performance of the contract, although they are in contention as to how it should be performed or enforced. But the impossibility, and necessary, but unexpected, postponement, of the performance of the contract in these particulars has also rendered it impossible to observe and enforce, consistently with the original and paramount intention of the parties, (ás to the performance by both parties being substantially contemporaneous,) the provision thát the purchaser’s note for $125,000 should draw interest from May 1, 1886, payable semiannually. Birch v. Joy, supra. The language of Lord Chancellor St. Leonards in the case cited as to the effect of the unexpected delay in the performance of the contract, and the principle of the decision in that case, are applicable in this. See particularly page 598 et seq. If the plaintiff is now required to pay interest on the $125,000 from May, 1886, it is because the literal expression in the contract in that particular remains unaffected and strictly enforceable; notwithstanding the lapse of time, and the impossibility of carrying out the intention of the parties within the reasonable period originally contemplated. To thus hold the purchaser to perform strictly the letter of the agreement on his part, while the just as binding obligation of the vendor, in consideration of which that of the vendee was undertaken, could not be and was not performed according to the intentions of the parties, would not be equitable. The same reason—that the letter of the agreement in respect to payment must be strictly enforced—would lead to results plainly unjust and at variance with the intention of the parties. It would have enabled the vendors to have recovered from the vendee the successive installments of interest on $125,000 every six months after May, 1886, and at the expiration of five years after the making of the contract to have recovered the principal sum of $125,000, notwithstanding the fact that the vendors’ title was still confessedly doubtful and in litigation, and the express right of the vendee, at Ms election, to abandon the contract and recover back — 485 — tbe earnest money, $5,000, remained unimpaired; and this, too, while the vendors remained in possession, unable to convey, and receiving the rents and profits. The provisions that the note should be payable within five years after the making of the contract, and that the interest should be payable semiannually, were as absolute and obligatory as that providing that the note should draw interest from May 1,1886. Of course, there could have been no such right of recovery, for the provisions just referred to were dependent or conditioned upon the contract being performed by the vendors by the conveyance of, or ability to convey, a good title before the other party should become obligated to make such payments, or even to assume an absolute obligation to pay. The parties did not intend any such thing. But neither when they entered into this contract did they intend that the performance of it should remain in abeyance for many years, the vendors remaining in possession, unable to convey; the vendee out of possession, unable safely to enter into possession or to improve the property, and uncertain whether the sale could ever be completed. The agreement to pay interest from May, 1886, was not made in reference to or in contemplation of such an outcome of the contract. Even if it were now possible to enforce that feature of the agreement according to its letter, it could not be done without doing violence to the paramount controlling intention of the parties that the performance of the contract on both sides should be substantially contemporaneous. That paramount intention may and should be carried into effect. The case is distinguishable from those where the parties have stipulated for interest during any delay in the performance of the contract in terms indicating that the stipulation for interest was made with reference to such delay. In this case the provision respecting interest was not made with reference to any possible delay in the completion of the contract. On the contrary, it related merely to the agreed postponement of the payment of a part of the purchase price for an optional period of five years after the making of the contract. The case is also to be distinguished from those where the vendee enters into and enjoys the possession of the property. The same reasons which now forbid the enforcement of the clause respecting interest forbid also the enforcement of the provision re — 486 — specting'the payment of taxes while the vendors remained in the possession and enjoyment of the use of the property, unable to convey it, or to surrender a safe possession to the other contracting party. Carroches v. Sharp, 20 Beav. 56. (Opinion published 56 N. W. Rep. 59.) It is different, however, as respects the local city assessments charged upon the property by reason of the benefits (presumably permanent) which it has derived from public improvements. These are lasting benefits to the property, which the plaintiff, rather than the defendants, will enjoy. It is advisedly conceded by the respondents that the plaintiff ought not to have been allowed anything on account of such local assessments. The order for judgment in the district court will be modified by disallowing the claim of the plaintiff in respect to such special assessments. The order appealed from is affirmed except as thus modified.