United States v. Raine-Andrews Lumber Co.

DAYTON, District Judge (after stating the facts as above). [1] There are several propositions proven in this cause beyond all doubt or controversy. Among others: (a) That the government did not originally have any intent or purpose to buy the uncut virgin timber on this large tract of land; (b) that it did not, at any time, indicate any purpose to claim it prior to the agreement entered into October 5, 1914; (c) that this agreement was wholly prepared by its government solicitor under instructions from the forestry division having the preliminary negotiations in charge; (d) that this lumber company had no purpose or design of selling the timber on the uncut-over land, estimated to be worth to it, by reason of the merchantable timber stand — 797 — ing thereon, $45 per acre, to the government at the very modest price of $4 per acre. Since procuring this agreement to sell, the government has, however, upon somewhat technical grounds, claimed, and by this proceeding is now seeking to secure, this timber, which it did not in fact purchase. Its position substantially is that the agreement is not ambiguous in its terms; that they are ample to include and constitute a complete sale of this uncut timber as part of the land sold, and. in the words of Justice Clifford in Walden v. Skinner, 101 U. S. 577, at page 584, 25 L. Ed. 963: “When an agreement is reduced to writing by the act and consent of the parties, the intent and meaning of the same must be sought in the instrument which they have chosen as the repository and evidence of their purpose, and not in extrinsic facts and allegations.” Under this rule of law the counsel for the government has filed exceptions to the answer of the defendant, so far as it attempts to defend, relying upon negotiations and communications had prior to the execution of the agreement by the parties. I announced at the trial my purpose to overrule these exceptions, and now confirm such purpose for two reasons: First, because I am constrained to think that the allegations of this answer, under the simplified pleading provided for by the new equity rules (198 Fed. xix, 115 C. C. A. xix), were sufficient to raise the issue of fraud and especially mistake in the execution of the contract; and, second, were also sufficient to base the plea that a separate, independent, and contemporaneous contract had been made between the parties touching this uncut timber. [2] The power and duty of equity courts to relieve for reasons of fraud and mistake are very generally recognized, and citation of authorities in support therefor would ordinarily be unnecessary; hut inasmuch as the courts have varied as to the strictness of the rules governing as to what mistakes will be relievable — some holding they must be mutual on the part of both parties to the agreement — I quote the rules so clearly and satisfactorily set forth by Justice Clifford in Walden v. Skinner, supra, which are binding on federal courts: ‘•Courts of equity afford relief in case of mistake of facts, and allow parol evidence to vary and reform written contracts and instruments, when the defect or error arises fro»! accident or misconception, as properly forming an exception to the general rale which excludes parol testimony offered to vary or contradict written instruments. Where the mistake is admitted by the other party, relief, as all agree, will be granted, and if it be fully proved by other evidence, Judge Story says, the reasons for granting relief seem to be equally satisfactory. 1 Story, Eq. Jur. § 156. “Decisions of undoubted authority hold that where an instrument is drawn and executed that professes or is intended to carry into execution an agreement, which is in writing or by parol, previously made between the parties, but which by mistake of the draftsman, either as to fact or law, does not fulfill or which violates the manifest intention of the parties to the agreement, equity will correct the mistake, so as to produce a conformity of the instrument to the agreement; the reason of the rule being that the execution of agreements fairly and legally made is one of the peculiar branches oí equity jurisdiction, and if the instrument intended to execute the agreement be from any cause insufficient for that purpose, the agreement remains as much unexecuted as if the party had refused altogether to comply with his — 798 — engagement, and a court of equity will, in tie exercise of its acknowledged jurisdiction, afford relief in the one ease as well as in the other, by compelling the delinquent party to perform his undertaking according to the terms of it and the manifest intention of the parties. Hunt v. Rousmaniere’s Adm’rs, 1 Pet. 1, 13. [7 L. Ed. 27]; Same v. Same, 8 Wheat. 174, 211 [5 L. Ed. 589]. “Even a judgment, when confessed, if the agreement was made under a clear mistake, will be set aside, if application be made, and the mistake shown, while the judgment is within the power of the court. Such an agreement, even when made a rule of court, will not be enforced, if made under a mistake, if seasonable application be made to set it aside, and, if the judgment be no longer in the power of the court, relief, says Mr. Chief Justice Marshall, may be obtained in a court of chancery. The Hiram 1 Wheat. 440, 444 [4 L. Ed. 131]. “Equitable rules of the kind are applicable to sealed instruments as well as to ordinary written agreements; the rule being that if by mistake a deed be drawn plainly, different from the agreement of the parties, a court of equity will grant relief by considering the deed as if it had conformed to the antecedent agreement. So if a deed be ambiguously expressed' in such a manner that it is difficult to give it a construction, the agreement may be referred to as an aid in expounding such an ambiguity; but if the deed is so expressed that a reasonable construction may be given to it, and when so given it does not plainly appear to be at variance with the agreement, then the latter is not to be regarded in the construction of the former. Hogan v. Insurance Co., 1 Wash. [C. C.] 419, 422 [Fed. Cas. No. 6,582], .“Rules of decision in suits for specific performance are necessarily affected by considerations peculiar to the nature of the right sought to be enforced and the remedy employed to accomplish the object. Where no question of fraud or mistake is involved, the rule with respect to the admission of parol evidence to vary a written contract is the same in courts of equity as in those of common law, the rule in both being that, when an agreement is reduced to writing by the act and consent of the parties, the intent and meaning of the same must be sought in the instrument which they have chosen as the repository and evidence of their purpose, and not in extrinsic facts and allegations. Proof of fraud or mistake, however, may be admitted in equity to show that the terms of the instrument employed in the preparation of the same were varied or made different by addition or subtraction from what they were intended and believed to be when the same was executed. “Evidence of fraud or mistake is seldom found in the instrument itself, from which it follows that unless parol evidence may be admitted for that purpose the aggrieved party would have as little hope of redress in a court of equity as in a’court of law. Even at law, all that pertains to the execution of a written instrument or to the proof that the instrument Was adopted or ratified by the parties as their act or contract, is necessarily left to extrinsic evidence, and witnesses may consequently be called for the purpose of impeaching the execution of a deed or other writing under seal, and showing that its sealing or delivery was procured by fraudulently substituting one instrument for another, or by any other species of fraud by which the complaining party was misled and induced to put his name to that which was substantially different from the actual agreement. Thoroughgood’s Case, 4 Coke, 4. “When the deed or other written instrument is duly executed and delivered, the courts of law hold that it contains the true agreement of the parties, and that the writing furnishes better evidence of the sense of the parties than any that can be supplied by parol; but courts of equity, says Chancellor Kent, have a broader jurisdiction and will open the written contract to let in an equity arising from facts perfectly distinct from the sense and construction of the instrument itself. Pursuant to that rule, he held it to be established that relief can be had against any deed or contract in writing founded on mistake or fraud, and that mistake may be shown by parol proof and the relief granted to the injured party whether he sets up the mistake affirmatively by bill or as a defense. Gillespie v. Moon, 2 Johns. (N. Y.) Ch. 585, 596 [7 Am. Dec. 559].” — 799 — [3 -5] In its verified answer (the bill was verified and by it answer under oath was not waived) the defendant says: “Respondent further states that it would never have signed said contract of sale at $4 per acre in fee without having therein a specific reservation or its right to cut and remove all merchantable timber from said tract, which said timber alone was worth at least $45 per acre, but for the letter of July 16, 1014. from Wm. L. Hall, Assistant Forester for the United States Department of Agriculture, hereinbefore set out, wherein he states: “We shall draw up the contract for your land without reference to the reservation of the timber. « * * Inasmuch as the limber will all be removed before title is likely to pass to the government, no mention will be made m the agreement coneerning the timber reservation.” But relying- implicitly upon said letter protecting its timbor'rights, it caused said contract to he executed on October, 5, 1914. “Respondent further states that, although said contract was executed on October 5, 1014, more than five years ago, the title thereto has never been approved or said land taken up by the plaintiff, by reason of which it has suffered the loss of more than 30 per cent, interest upon the purchase price, been compelled to pay taxes thereon for five years, and if it should be denied the right to remove the balance of the merchantable timber therefrom, it would suffer a great injustice, and much pecuniary loss, as the merchantable timber remaining uncut thereon is worth at least $5 per thousand feet on an average, as alleged in paragraph No. 9 of plaintiff’s bill.” I am constrained to believe this statement to be strictly true. Its very statement of substantially undisputed fact as to the value of the timber involved is impressive, and it would be hard to conceive why such value would be surrendered by a company managed by men of business sense and capacity. In the first proposal to sell the full acreage of 13,200 acres owned by it, the company proposed to reserve the timber with a 10-year limit to cut and remove it. This was objected to by the government forester, who, assuming that 7,000 acres of the whole had been cut over, expressed his belief “that 1,000 acres a year should be about the minimum allowance” for cutting a remainder of 5,000 acres uncut. The capacity of defendant’s mill was not equal to this, and the result was that, at the local examiner’s request, Mr. Raine, for the defendant, undertook to submit a second proposal, and upon notice to this effect the government’s forester at Washington wrote its local agent: “I do not believe, however, that the proposal will be considered at a price of $4, unless the company is willing to reserve occasional seed trees of ash, cherry, and basswood” —meaning, manifestly, refrain from cutting such. And he added: “If the company could he induced to reduce their offer to $3 per acre, there would be a much greater probability of its being favorably considered.” In reply the local examiner stated the hardwood lands (that would supply seed trees of ash and cherry) had already been cut over, and that “several boundaries from the original tract, after being cut over, had been sold for agricultural purposes at the rate of $10 per acre.” The second proposal confined the negotiation to the cut-over land substantially, but set out that timber on 100 acres thereof uncut was to be reserved for two years, and agreeing: “If timber rights on 100 acres are reserved for two years, and the mineral rights are reserved in 6,482 acres, will sell for $4 per acre.” — 800 — It will be thus seen that the company had gone in this paper to the limit — offered to limit the uncut area to a total area of 100 acres -within the limits of the 6,482-acre boundary — and that this proposition had come to the final word, so far as the company was concerned, as regards the sale of the uncut timber; and it was so regarded by the government officials in charge of the negotiations, for we hear nothing further, during the seven months taken by them to make examination of the land, in regard to any further reductions in the timber reservations, and when the assistant forester had prepared the three months option dated June 27, 1914, he inserted in it the reservation for two years of the uncut timber on 100 acres. Had the forester seen fit to prepare the final agreement of sale in accord with this option which he himself prepared, or had prepared, and had inserted in it the option clause in regard to this timber reservation, there is no doubt the ruling of the Supreme Court of Appeals of this state in the cases of Null v. Elliott, 52 W. Va. 229, 43 S. E. 173, Adkins v. Huff, 58 W. Va. 645, 52 S. E. 773, 3 L. R. A. (N. S.) 649, 6 Ann. Cas. 246, Electro Co. v. Montgomery, 70 W. Va. 754, 74 S. E. 994, and Deer Creek Lumber Co. v. Sheets, 75 W. Va. 21, 83 S. E. 81, cited and so confidently relied on by counsel for the government, would have been decisive. The agreement to sell in that event would have restricted the removal of the ,timber to a specific and limited period of two years from the date of the agreement. Several very vital deductions are to be drawn from these cases— among others: (a) That in order to forfeit the right of the owner to his timber the -contract must fix a specific period of time within which the timber must be cut and removed, and this period of time must have elapsed. This for the reason that “such a provision as this in timber contracts is held to be a condition of the sale, and not a covenant to remove,' and that the purchaser only takes such of the timber as he may cut and remove in the specified time; otherwise it remains the property of the landowner as part of the land.” Null v. Elliott, supra. It is very clear from these cases that where, in the contract, no specified period of time for removal is set forth, this rule is wholly inapplicable. In such case there is a severance, whereby the seller remains the owner of the timber, and the buyer becomes owner of the land surface, as so commonly illustrated in this state, where coal is sold from under the land and the surface is retained. Incidentally it may be noted that this Null Case was really decided independent of all these considerations, on the ground that equity had no jurisdiction; the plaintiff Null having,’ if any at all, a complete remedy at law. That ruling, if applied here, would dismiss and end the government’s case. I do not apply it, however, and make no point-as to it other than to mention it, for that, as I construe the subsequent case of Pardee v. Lumber Co., 70 W. Va. 68, 73 S. E. 82, 43 L. R. A. (N. S.) 262, it overrules this ruling in the Null Case, and I think rightly so. A second deduction from the Null and other cases, relied on as above set forth, is (b) that the right of equity to reform or rescind these timber contracts for fraud or mistake is fully recognized; and (c)- in the Adkins-Huff Case, 58 W. Va. at page 649, 52 S. E. 773, 3 L. R. A. — 801 — (N. S.) 649, 6 Ann. Cas. 246, citing and approving Johnson v. Moore, 28 Mich. 3, the right oí equity to uphold and enforce an independent simultaneous contract as to the timber reserved is also fully recognized. But the forester did not see fit to include in the final agreement to sell the option’s clause in regard to the timber reservation, but instead wrote the defendant, under date of July 7th, ten days after the option had been prepared (dated June 27th): “In the proposal which is dated November 5, 1913, you mention your desire to reserve for two years the timber on 100 acres, together with a railroad right of way for the time which would he required to remove your timber in that section. I have been informed since that you are cutting the timber on the 100 acres, and if this is so you will probably have completed its removal before the title to the tract, can pass to the government, in which case there is no need to mention a mservation of the timber.” This was a clear recognition of the defendant’s right to- the timber and its right to remove it, with no definite fixed date to do so. But this was not all; on July 18th he wrote defendant: “Wo shall draw up the contract for your land without refei'cnce to the reservation of the timber or the railroad, and when title passes to the land a pen.lit can be renewed from year to year until the right of way is no longer needed by your company or its successors. Inasmuch as the timber will all be removed before title is likely to pass to the government, no mention will he made in the agreement concerning the timber reservation.” Here was a clear recognition of the right of the defendant to cut and remove the timber until title should pass to the government, and an implied promise, if not so cut by that time, permit would be granted it to do so afterwards, as in the case of the use of the railroad across the land. And this implied promise is made certain by the fact that, on the very same day he wrote this letter to the defendant, he sent a memorandum of directions to the department’s solicitor as to how the final agreement was to be drawn, in which he says: “Please prepare an agreement to cover the purchase of this land. The option held by the government is inclosed for your information. Maps showing the boundaries of the tracts are also inclosed herewith. In preparing the agreement, please omit reference to the right of way and the reservation of the timber on 100 acres cited in the option, as these matters will be handled under permits.” When it is borne in mind that all these writings, the two proposals, the option, and the final agreement to sell, were prepared under "the direction of the government’s officers, and that the consummation of the purchase was only to pass when title deed was declared to be satisfactory to the government’s Attorney General, it seems to me their terms should be construed more liberally, in favor of the grantor defendant — in short, constitute an exception to the general rule to the contrary. And this is strengthened by the very general and very proper understanding that the government will never knowingly do wrong and injustice lo any of its citizens. Tor reasons not disclosed, the Attorney General has never approved of the government’s taking title direct from the defendant. For near five years or more it has delayed securing title by condemnation proceedings, only having instituted such proceedings a few months ago. During all this time — to be — 802 — accurate, since June 27, 1914, the date of its option — defendant’s large tract of land has been tied up in a degree of uncertainty as to whether it would be taken by the government or not. It has been deprived of all right to sell and convey to others. It has lost the use in tire way of interest on the very moderate price at which it agreed to sell, something over $8,500, and now is confronted with a demand that its purchase price be abated, or it be required to pay the g-overnment damages for the cutting of something over 240,000 feet of lumber at threefold its value, or over $3,600, which it believed, and had good reason to believe, it owned and had right to cut, and also be deprived of the value of at least 800,000 feet more of timber, worth $4,000, which it believes and insists it never sold, and the government agreed it should have the right to cut and remove. I cannot reconcile myself to hold that the contentions of the government to this end would be in accord with equity and good conscience. On the contrary, I am constrained to reach the conclusion that the defendant by the final contract never intended to sell this timber on 100 acres of tire uncut-over land; that its execution of this contract, so carrying on its face and by its terms such conveyance, was done by it by mistake at least, being directly led to do so by the representations of the government official agents having the negotiations in charge; that these representations in fact, taken together; as disclosed by the documentary evidence in the cause, fully constituted an independent, separate, and contemporaneous contract whereby the defendant was to have the right to this timber on 100 acres uncut over, and the right to cut and remove the same any time before the government took over the legal title, and a reasonable time thereafter by its permit. This conclusion is not shaken by the argument of counsel that, because the defendant in its option agreed to limit the time of removal to two years, and by the fact that Raine wrote they were going to cut the timber the following winter, that forfeiture of its right to such timber has thereby accrued in the government’s favor. [6] 'It could be argued very plausibly that the two-year limit clause in the option should relate to the two years following either the date of the option, the date of the final agreement, or the date when the government should finally take legal title to the land. But such argument becomes wholly de trop, because this clause of the option was not accépted by the government’s forester; but, on the contrary, he constituted the limit, by his separate, independent, and contemporaneous contract, to be until the title to the land shall have passed to the government, and a reasonable time thereafter by permit, if necessary. The bill admits that title has not yet passed to the government, but sets forth that condemnation proceedings to secure the same are pending. It follows that the temporary restraining order must be dissolved, and the bill dismissed.