Opinion
No. 15,300.
Decided April 29, 1946. Rehearing denied June 3, 1946.
An action for specific performance of a contract. Judgment of dismissal.
Affirmed.
1. SPECIFIC PERFORMANCE — Burden of Proof. In an action for specific performance of a contract, plaintiff, who alleged that certain proceedings were within the fair interpretation of the contract, had the burden of proving that fact, it was part of his necessary proof of full performance, and the burden was upon him to establish it.
2. Appeal and Error. In an action for specific performance of a contract, record reviewed and contention of plaintiff in error that the court erred in finding that there was no equity in plaintiffs' bill, considered and overruled.
3. APPEAL AND ERROR — Findings. Findings of the trial court which are supported by substantial evidence will not be disturbed on review.
4. SPECIFIC PERFORMANCE — Contracts — Court Powers. In an action for specific performance the contract must be enforced according to its terms or not at all. A court is without authority to compel a party to do something he did not contract to do.
5. Contracts. In an action for specific performance, the contract must be free from ambiguity and it must be clearly established that the demanded performance is in accordance with the actual agreement of the parties.
6. Contracts — Equity. A greater amount or degree of certainty is required in the terms of an agreement, which is to be specifically executed in equity, than is necessary in a contract which is to be the basis of an action at law for damages.
7. Contracts — Equity. There is no better established principle of equity jurisprudence than that specific performance will not be decreed when the contract is incomplete, uncertain or indefinite.
Error to the District Court of the City and County of Denver, Hon. Robert W. Steele, Judge.
Mr. MAX P. ZALL, for plaintiffs in error.
Mr. A. R. MORRISON, Mr. RALPH L. CARR, for defendants in error.
WILLIAM N. BOWMAN was a Denver architect. His wife Alice became the owner of all the capital stock of the Norman Apartments, Inc., which held title to an apartment building in Denver, subject to a first mortgage of $244,000 and a second mortgage of $49,500. Defendant Reyburn was a Kansas City contractor. Bowman and Reyburn together planned to construct a second apartment building on property adjoining that occupied by the first, and in November 1928 they entered into an agreement whereunder Reyburn was to advance money to Bowman for payment of defaulting taxes and interest and other pressing financial obligations and be secured by Mrs. Bowman's capital stock in the Norman Apartments, Inc., and other agreed collateral. Pursuant to such agreement Reyburn advanced in excess of $50,000. Included in these advances was the sum of $11,000 paid by Reyburn on March 7, 1929, to purchase Bowman's note then outstanding, secured by part of the second mortgage bonds of the Norman Apartments, Inc. Upon such purchase Bowman executed a new note to Reyburn for $11,000 maturing on the first day of July 1929 and secured by $26,000 face value of the bonds. Bowman defaulted in payment and, approximately a year after the maturity of the note, Reyburn advertised the collateral for sale. Bowman attempted by suit to enjoin the sale, then by agreement it was postponed to the twentieth day of August, 1930, and the bonds were then bid in for $1,100 by one Baker who thereafter transferred them to Rockhill Realty Company which turned them over to Rockhill Improvement Company on May 30, 1935.
Meantime, Bowman had defaulted in payments under the first mortgage obligation on the apartment house property and in December 1932 the trustee for the first mortgage bondholders started foreclosure. Thereafter, notwithstanding numerous disagreements, Bowman and Reyburn worked together to delay the foreclosure, Bowman's suit against Reyburn was later dismissed for want of prosecution and on June 29, 1935, the two men met in Denver and entered into the contract (Plaintiff's Exhibit C) of which specific performance is sought in this action. It was written by Reyburn's attorney, in long hand, at the hotel room where they conferred, and provided as follows:
"First: — That a petition under section 77 B shall be prepared and presented by the corporation known as The Norman Apartments, Inc. for reorganization as soon as same can be reasonably prepared.
"Second: — That the undersigned will work together for a reduction of the First Mortgage loan to the lowest point possible.
"Third: — The stock of a new corporation shall be issued one-half to Mr. Roscoe Rayburn and one-half to Miss Dorothy Bowman.
"Fourth: — That one-half of the net income, over and above the First Mortgage requirements shall be declared as dividends and paid to Roscoe Rayburn; the other half shall be declared as dividend on stock issued to Dorothy Bowman but shall be paid to Roscoe Rayburn until he shall receive therefrom the sum of Fifty Thousand Dollars ($50,000.00) at which time all the stock standing in the name of Roscoe Rayburn will be, without further payment, assigned by him to Dorothy Bowman or such party or parties as she may direct.
"Fifth: — As soon as the reorganization is completed as above provided, Mr. Rayburn will, in consideration of the stock and agreements above mentioned surrender all of the Bonds, Notes or other evidences which he has in his possession to Mr. Mrs. W. N. Bowman, or the old corporation, or such other party as he may direct.
"Sixth: — That Mr. Bowman or his family be allowed to retain his present apartment (#102) without payment of rental and also storage in garage."
Pursuant to the provisions of this pitifully meager agreement, there were negotiations and correspondence in which Bowman, Reyburn, and their attorneys participated, as a result of which on September 19, 1935, a petition was filed in the name of the Norman Apartments, Inc. for leave to reorganize under section 77-B of the United States bankruptcy laws. Under this petition there were submitted three alternative plans for compromise of the first mortgage bonds, second mortgage bonds and all other outstanding debts. None of these plans was approved by the first mortgage bondholders and the apartment property went to sale under foreclosure on October 14, 1935, whereat a representative of the bondholders' committee bid in the property for the sum of $164,000. After it became apparent that no reorganization was possible, and the property had been sold under foreclosure, there were discussions by Reyburn and Bowman as to the possibility of redemption from the foreclosure sale in behalf of the second mortgage bondholders and as to procuring a loan sufficient to pay the amount for which the property was bid in, as well as with reference to agreement as to expense and method of procedure and reorganization, as to protection of Reyburn and as to ultimate ownership of the stock in the company which, in the event of redemption, should hold title to the equity in the apartment building. Englander, the manager of the apartment property, assisted in the efforts to save the property and to compose the differences between Bowman and Reyburn. In December 1935, Englander bought some of the second mortgage bonds of the face value of $8,500 which he turned over to Reyburn and the latter sold half of them to Bowman at the price paid, to wit, $425. They were apparently taken in the name of Bowman's daughter. Dorothy. Both Reyburn and Englander testified that when this sale was made they had come to a verbal understanding evidenced by pencil notations made on a copy of the old agreement of June 29, and that only upon approval of the contract as so modified would Reyburn agree to such sale, but when attempt was made to prepare a formal contract on the basis of those notations Bowman refused to sign. Bowman thereafter repeatedly insisted that no new agreement was necessary and that he was still acting under the old agreement of June 29, 1935, and demanded performance thereunder by Reyburn. On the second day of January 1936, without consultation with Bowman, a plan for redemption was filed in the name of the Rockhill Improvement Company as a second mortgage bondholder, providing in brief for procuring a new mortgage to pay the amount bid at the sale by the first mortgage bondholders and the organization of a new company to hold title subject to such new mortgage; the stock of the new company to be accepted by the second mortgage bondholders in proportion to their holdings and in satisfaction of their bonds. Of the $49,500 second mortgage bonds outstanding, more than two-thirds were deposited with the referee in bankruptcy as approving the plan, to wit: $26,000 held by Rockhill Improvement Company, $2,000 of Reyburn's part of the $8,500 which had been bought through Englander, and all or part of $11,500 of the bonds which were later acquired and deposited by Englander. About May 1, 1936, this plan was approved by the federal court. Then Reyburn and Englander procured a mortgage loan with which to carry it into effect and a new corporation (defendant in error the Norman, Inc.) was organized and its corporate stock tendered to the holders of the second mortgage bonds, including stock to Dorothy Bowman on the basis of the $4,250 face value of the bonds purchased by her father from Reyburn for $425. In February 1936, Bowman filed petition in bankruptcy, listing his notes to Reyburn, but not the contract nor the balance of his debt to Reyburn not evidenced by notes. Thereafter the Bowmans made demand for an accounting and performance of the agreement of June 29, 1935, and upon refusal thereof filed this action on January 10, 1941, for specific performance of that contract, contending that the Rockhill Improvement Company, which filed petition for redemption, was owned and controlled by the defendant Reyburn and that the redemption as carried out was a reorganization as contemplated by their agreement of June 29, 1935. These contentions were put in issue by defendants' answer, and, after trial on the merits, the court below determined that the weight of the evidence is to the effect that the contract sued upon here was at an end when the plan of reorganization first presented to the Federal Court failed of adoption, and that there is no equity in the bill. Accordingly, it found the issues in favor of defendants.
It is first contended that the court below erred in holding that the burden of proof rested on plaintiffs. On June 29, 1935, when the contract was made, Bowman was the owner of the corporate stock of the Norman Apartments, Inc., which, however, was pledged to Reyburn to secure his advances. Bowman's $26,000 of second mortgage bonds had already been sold and were held by Rockhill Improvement Company. The other second mortgage bonds were held by numerous parties and Bowman had no interest in the property or hope of recovery except through such reorganization as would give some value to his capital stock. The one method of reorganization which could avail Bowman was through such compromise and adjustment of the mortgages and debts of the corporation as would prevent the elimination of this stock. The first paragraph of the agreement provides for petition for such reorganization to be presented by the corporation. That petition and plan of reorganization failed. The subsequent and successful petition was filed, not by the corporation, but by the Rockhill Improvement Company. It was not for reorganization, but for redemption. It provided, not for the protection of the stockholders, but for protection of the second mortgage bondholders. Such petition and redemption thereunder could not help Bowman, as he held no bonds, and it is not within the apparent provisions of the contract. Therefore, Bowman, who asserted that such petition and the reorganization thereunder were within the fair interpretation and intended provisions of the contract, had the burden of proof of that fact. It was part of his necessary proof of full performance, and the burden was upon him to show a full and complete performance or offer to perform on his part. Forthman v. Deters, 206 Ill. 159, 69 N.E. 97; Boldt v. Early, 33 Ind. App. 434, 70 N.E. 271, 49 Am. Jur. 190, § 167. The trial court did not err in so holding.
It is next urged that the court erred in finding there was no equity in plaintiffs' bill, and entering judgment of dismissal thereof. Considering the matters urged in plaintiffs' brief as showing equity in their bill, all the acts disclosed to have been performed by Bowman were carried out in connection with the attempt to procure reorganization through the plan of the Norman Apartments, Inc., pursuant to the explicit provisions of their agreement Exhibit C. After that failed, nothing appears from the evidence as having been accomplished by Bowman in connection with the redemption of the property. Bowman was not in any position to redeem through the corporation, the Norman Apartments, Inc.; that would have required not only payment of the amount at which the property had been bid in, but also satisfaction of the encumbrance represented by the second mortgage bonds, the judgment, and of claims of other creditors of the corporation as well as settlement with Reyburn for the balance due him and for which he held Bowman's stock as security. Bowman had no money or property of any sort; he was then filing petition in bankruptcy whereby he became discharged even from his obligation to pay what he owed Reyburn. Redemption except through Reyburn was impossible, and he and Reyburn could not agree as to terms of cooperation. The evidence is not convincing that Bowman was influential in procuring any reduction of the price at which the property was bid in at the foreclosure sale; he may have sought to secure a new loan with which to redeem, but he did not succeed, and the loan was procured by Reyburn with the assistance of the bonds which had been purchased by Englander with his own money. Bowman participated in conferences with reference to redemption during the period while he and Reyburn were attempting to reach agreement for working together, but there is no showing of participation by Bowman thereafter and the plan for redemption was the work of Reyburn and his attorneys. Bowman purchased none of the second mortgage bonds except to the extent of $425. These he took in his daughter's name and they were not used in voting for the plan of redemption nor as security for the loan whereby the plan was effected. The one act of Bowman in relation to the redemption was his signing of consent to the redemption in behalf of the Norman Apartments, Inc., the equity owner. This was prepared and tendered to him by Mr. Reyburn's attorney; it cost him no effort; it cut off no existing right, and was not necessary to the accomplishment of the redemption.
The provision of the contract, Exhibit C, that a petition for reorganization should be prepared and presented, placed upon Bowman equally with Reyburn the obligation of paying expenses in connection therewith, yet Bowman made no payment nor tender of any part of such expenses. Reyburn paid the filing fee, the expense of advertising, the expense of printing the three alternative plans of reorganization and of the letter to accompany the same, the expense of postcards for the convenience of the creditors in their approval or disapproval of the plans and the expense of postage and mailing. Reyburn himself made several trips to St. Louis to contact first mortgage bondholders and numerous trips to Denver. There is no evidence of any effort or expenditures whatever by Bowman, except presumably in the payment of his attorney who participated in working out the unsuccessful plans for reorganization. After the failure of reorganization all expense in connection with redemption was incurred by Reyburn. The entire proceeds of the loan obtained by Reyburn and Englander to procure money for redemption was spent in connection with the redemption and Reyburn personally advanced necessary money for interest between the date of redemption and the date of final settlement. We find no equities in plaintiffs' bill.
It is further urged that the parties to the contract, here under consideration, contemplated redemption by the second mortgage bondholders; however, the trial court has found to the contrary and since that finding is supported by substantial evidence it will not be disturbed.
Finally, it is urged that, in effect, Reyburn redeemed from the mortgage and that he owned the new company which took title to the property; that we should ignore the corporate fiction used to conceal his personal ownership, and that the court, having jurisdiction, should have settled all rights between the parties. Assuming, as may be justified by the evidence, that Reyburn controlled the Rockhill Improvement Company and that the latter was merely the vehicle through which he held the second mortgage bonds, carried out his plan of redemption and acquired title to the apartment house, we still find no basis for reversal, since plaintiff has failed to establish the existence of any contractual right upon which his interest may be founded. "The contract must be enforced according to its terms or not at all. A court is without authority to compel a party to do something he did not contract to do." Schmidt v. Barr, 333 Ill. 494, 165 N.E. 131, 65 A.L.R. 1. "'Equity,' this court said in Hunt v. Rousmainier, 1 Pet. 1, 14, 'may compel parties to perform their agreements, when fairly entered into, according to their terms; but it has no power to make agreements for parties, and then compel them to execute the same. The former is a legitimate branch of its jurisdiction, and in its exercise, is highly beneficial to society. The latter is without its authority, and the exercise of it would be not only an usurpation of power, but would be highly mischievous in its consequences." Adams v. Henderson, 168 U.S. 573, 18 Sup. Ct. 179, 42 L.Ed. 584.
[5-7] In an action for specific performance, the contract must be free from ambiguity and it must be clearly established that the demanded performance is in accordance with the actual agreement of the parties. Offutt v. Offutt, 106 Md. 236, 67 Atl. 138, 124 Am. St. Rep. 491. "A greater amount or degree of certainty is required in the terms of an agreement, which is to be specifically executed in equity, than is necessary in a contract which is to be the basis of an action at law for damages." Pomeroy's Specific Performance of Contracts (3d ed.), § 159, quoted in Ward v. Ward, 94 Colo. 275, 30 P.2d 853, also in Mestas v. Martini, 113 Colo. 108, 153 P.2d 161. "There is no better established principle of equity jurisprudence than that specific performance will not be decreed when the contract is incomplete, uncertain, or indefinite." Dodge Bros. v. Williams Estate Co., 52 Nev. 364, 287 Pac. 282. The situation presented in the instant case calls for the application of this principle.
Accordingly, the judgment is affirmed.
MR. JUSTICE BURKE and MR. JUSTICE BAKKE dissent.
MR. JUSTICE ALTER did not participate.