Opinion
02-09-1897
ZIMMERMAN et al. v. BROWN et al.
R. H. McGarter, for complainants. William B. Guild, for defendants.
Bill for specific performance of a contract to convey real estate, by Charles P. Zimmerman and others against Warren S. Brown and others. Decree for complainants.
R. H. McGarter, for complainants.
William B. Guild, for defendants.
EMERY, V. C. Upon consideration of the pleadings and proofs in this case, I reach the conclusion that the complainants are entitled to a decree for the specific performance of the contract to convey, contained in the lease made by the defendant Isaac P. Brown, Sr., to the complainants Zimmerman & Brown. This lease contained an option for purchase by the lessees, and as I have reached the conclusion that the pleadings and proofs show that this option to purchase was accepted by the lessees within the time fixed by the lease, and that a contract for sale, binding on both parties, was created by such acceptance, it will not be necessary to decide some other questions which have been raised and argued in the cause, touching the right of the complainants to relief, under the circumstances of the case, even if the option conferred by the lease was not exercised within the time limited. The facts relating to the lease and option to purchase, relevant to the case, in the view I take of it, are as follows: On April 8, 1886, by lease of that date, the firm of Zimmerman & Brown became lessees of a building and lot on Market street, Newark, for the term of five years from May 1, 1886, at an annual rent of $1,200, the lease containing a provision for the purchase of the property by the lessees at any time during theterm, for $16,000; $6,000 to be paid in cash, and $10,000 to be secured by bond and mortgage on the property. The firm, with a view to the purchase, expended about $4,000 in improvements on the property, before June 1, 1887, and about that date the defendant Isaac P. Brown, Sr., the father of the complainant Isaac P. Brown, Jr., purchased the property for $16,000, subject to the lease. Upon this purchase, and about June 27, 1887, I. P. Brown, Sr., leased the premises for the term of five years from July 1, 1887, at the same rental, the lease containing a similar option to purchase during the term. The firm continued to occupy and to improve the premises, and keep them in repair; and on June 26, 1802, another lease, for the further term of two years, from July 1, 1802, was made by I. P. Brown, Sr., to the firm, containing an option clause as follows: "And the said party of the first part [the lessor] doth covenant that [for quiet possession, etc.]; and that if the said party of the second part shall so desire, and shall give at least thirty days' notice, at any time three months before the expiration of the term hereby demised, of their desire to purchase the premises hereby demised, he, the said party of the first part, will convey said premises to the said party of the second part, or such person as they shall direct, for the sum of sixteen thousand dollars, upon their payment to him of six thousand dollars in cash, and executing and delivering to him their bond for the balance of said sum of sixteen thousand dollars, with interest thereon at the rate of not over five per centum per annum, payable half-yearly, the principal to be paid within one year after the date thereof, and said bond to be secured by their purchase-money mortgage upon said premises, which shall contain the usual insurance clause, for a policy of insurance of not less than $4,000, to be assigned to the mortgagee, and thereupon this lease shall be determined." This clause was similar to the option clause in the first lease from Brown to the firm. On March 29, 1894, as is admitted by the answers, the firm gave the lessor written notice of their desire to purchase the premises, and in the notice fixed June 30, 1894, as the time when they desired to receive the title and pay the consideration as provided in the lease. This notice was accepted by the lessor as sufficient, and subsequently the date of meeting for passing the title was, by mutual consent, changed to June 29, 1894. Previous to that time, divisions had arisen between Zimmerman and Brown, which soon after resulted in a dissolution and receivership; and Zimmerman, not being able to raise the $3,000 in cash necessary for his one-half of the cash payment of $6,000, had arranged for the raising of the entire purchase money, $16,000, by a single loan from the Prudential Insurance Company. The property had increased in value, and, according to the evidence, was worth then about $30,000; so that the company were ready to make the loan of $16,000, and the partner Brown, who knew of this arrangement, was, as he has sworn, on being called as defendant's witness, willing to execute this mortgage for $16,000, if his father consented to take it. He was, however, prepared on his part to pay $3,000 in cash for his share of the cash payment, money for this purpose having been advanced to him by his brother, the defendant Warren Brown, to whom the title was afterwards transferred, without valuable consideration. Mr. Brown, Sr., declined to accept either the $16,000 in cash, or $16,000 in cash with $500 in addition, being interest for the year on the $10,000 which was to be secured by bond and mortgage, and insisted upon the payment being made strictly according to the terms of the contract. He offered at that time to accept the payment according to these terms, but declined to consent to any other terms of payment, and refused to extend the time for making payment, in order that the payments might be made as required. Zimmerman not being prepared to comply with the terms, the deed was not delivered, and the parties separated. Isaac P. Brown, Jr., who then lived with his father, made no objection to this conclusion of the affair, which apparently resulted in a total loss of his share of the money expended in improvements and repairs, and of the increased value of the property from 1886. On July 12, 1894, Isaac P. Brown, Sr., conveyed the premises to his son, the defendant Warren Brown, by a conveyance purely voluntary. On July 24, 1894, the complainant Zimmerman filed a bill for the dissolution of the partnership and a receiver. On the same day, the complainant James E. Howell, Esq., was appointed receiver, and in this suit the firm was dissolved by decree made on October 27, 1894, and an account directed, which is still pending. By an order made in the suit, dated February 4, 1895, the receiver was directed to bring this suit, and this bill was filed on February 12, 1895, by the receiver, joining the members of the firm as complainants, in which he asks a conveyance of the property to himself as receiver, as part of the assets of the firm, tendering himself ready to pay the $16,000, with interest. Complainants allege in their bill that the purchase of the property by Brown, Sr., and the leases executed by him, were the means and instruments adopted by him and the firm to carry out an agreement between them by which he was to buy the property for the firm, and hold as their trustee and for their benefit; but such agreement was denied in the answer, and no written evidence of any such agreement was offered, and no evidence sufficient to make out a case which would prevent the operation of the statute of frauds was presented. The complainants' claim to relief on the facts alleged and proved depends, therefore, in my judgment, upon the rights of the lessees to specific performance of the contract for sale contained in the lease.
Stipulations for option of purchase are treated as conditional agreements to convey (Page v. Martin [Err. & App., 1890] 46 N. J. Eq. 585, 593, 20 Atl. 46); and the dispute inthis ease is whether under the privilege to purchase the contract for sale became a complete and binding contract on the lessor, by the acceptance of the option within the time limited, or whether it was not complete, and binding upon him unless the payments were also made within the time. If the contract to sell became binding on the lessor by the acceptance of the option, then the fact that the payments were not made precisely at the time and in the manner provided in the contract is not a bar to specific performance of the contract, if it can be substantially carried out by the decree. If, on the other hand, the payment of the purchase money, as well as the acceptance of the option, is intended to be a condition upon which the existence of a contract to sell, binding upon the lessor, depends, then, upon a failure to comply strictly with the conditions precedent, and in the absence of waiver, fraud, or other equitable circumstance affecting the lessor, no contract of sale has resulted, and the vendee has no equity for a specific performance. This seems to be distinctly settled by the authorities and cases referred to on both sides. Pom. Spec. Perf. par. 169, and cases cited; Mills v. Haywood, 6 Ch. Div. 196; Weston v. Collins, 11 Jur. (N. S.) 191. The only question is as to the application of the distinction, and this is purely a question of the legal construction of the terms of the agreement giving this option. The agreement first provides "that if the firm so desire, and shall give at least thirty days' notice, at any time three months before the expiration of the term, of their desire to purchase the premises, the party of the first part will convey the premises for the sum of $16,000, upon their payment," etc. The 30-days notice was thus the only condition which, by the form of the covenant, was expressly made precedent to the arising of an obligation to convey; and the lessor's case, therefore, depends upon his making out that the subsequent designation of the manner of making the payment was also intended as a condition precedent to the existence of a contract to convey, and not merely as fixing the manner in which the terms of the contract which has already arisen are to be carried out, and which terms, when equity requires, may be deviated from in matters not essential. And in view of the form of this contract adopted by the parties, which has thus defined the one condition precedent to the obligation to convey, the burden is upon the lessor to establish that the terms of payment, subsequently set out, are intended also as a second condition precedent to this obligation to convey; and any doubts as to the character of the provisions as to payment should here be resolved in favor of the construction which will preserve the substantial equities of the parties. Omitting the condition as to giving notice, as one which has been performed, the agreement, then, is in form an agreement by the lessor to convey to the lessees, for the sum of $16,000, upon payment of $6,000 cash, and executing and delivering a bond and mortgage for $10,000, payable in one year, etc. This is a usual form of agreements to convey, and such provisions as to payment of the consideration are construed to be conditions to be fulfilled before conveyance is directed, and for the purpose of carrying out the agreement to convey, but they are not construed as conditions upon which the existence of obligation or contract to convey depends; and while strict performance of the conditions for the payment, both in time and manner of payment, may be necessary in order to give a claim at law for damages on the contract to convey, it is not required as absolutely essential to the equitable relief of specific performance. King v. Ruckman (Err. & App., 1870) 21 N. J. Eq. 599.
Where no circumstances are shown rendering the specific performance of the contract inequitable, the general rule is that a court of equity will direct specific performance of a contract to convey lands where the party seeking performance can substantially comply with the contract, and compensation can be made as to the particulars in which a default has occurred, not reaching to the essentials of the contract. Pom. Spec. Perf. §§ 325, 327. Cases where there are incumbrances on the property, which can be provided for by the decree, or where the vendor's title fails as to a portion of the premises, or where there is a deficiency in the quantity of land, are familiar instances where specific performance, on proper compensation, is directed against the vendee. Id. §§ 452-454. The present case seems to me to be one where the same principle of compensation in nonessential matters can be directed in favor of the vendee. The vendee will be relieved against default in payment at the time appointed, unless time has been made essential, or becomes so, and the reason is that payment of the principal, with interest for the time which has elapsed, is considered, in equity, as full compensation for the default. Pom. Spec. Perf. § 374, and cases cited in notes. A default in the manner of payment, such as occurred here, seems to me to be equally subject to compensation, and the complainants are entitled to specific performance upon the terms of such equitable compensation. The complainants have sought relief with all reasonable diligence, and the defendants, on their side, have not shown any circumstances rendering the decree for specific performance inequitable to them, if the obligation to convey has arisen. The time for the payment of the mortgage provided for by the agreement having elapsed, the whole purchase money is due and payable, together with interest on the whole amount from July 1, 1894, the date of the termination of the lease. If the time fixed for payment had not elapsed, the conveyance, according to my present view, wouldhave been directed upon the terms of now paying $6,000 in cash, and giving the mortgage for the $10,000, payable as provided by the contract, and paying interest. A decree for specific performance will be advised.