United States v. Harris

• Decision Date: 05 December 1938
• Docket Number: No. 8816.,8816.
• Parties: UNITED STATES v. HARRIS. In re CHINOOK LUMBER & MFG. CO.
• Court: U.S. Court of Appeals — Ninth Circuit

100 F.2d 268 (1938)

UNITED STATES v. HARRIS. In re CHINOOK LUMBER & MFG. CO.

No. 8816.

Circuit Court of Appeals, Ninth Circuit.

December 5, 1938.

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Sam. M. Driver, U. S. Atty., of Spokane, Wash., William D. Donnelly, Oscar A. Provost, and Thomas E. Harris, Attys., Dept. of Justice, all of Washington, D. C., and Charles E. Collett, Acting Asst. Atty. Gen., for the United States.

Harry T. Davenport, of Spokane, Wash., for appellee.

Jas. A. Williams and Clarence C. Dill, both of Spokane, Wash., for amici curiæ.

Before HANEY, STEPHENS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

The United States appeals from an order of the District Court confirming a referee's order allowing in part and rejecting in part a claim in bankruptcy filed by the Government. The claim grew out of a breach by the bankrupt of a contract for the purchase of timber on the Colville Indian Reservation. The questions presented relate to the construction of the contract and the measure of damages to be applied.

The contract, entered into in 1924, was originally between the Superintendent of the Colville Indian School and the Hedlund Box and Lumber Company. It was assigned by the latter in 1925 to the Hedlund Lumber and Manufacturing Company, which afterwards changed its name to Chinook Lumber and Manufacturing Company. The latter company — the bankrupt here — will be referred to as the purchaser.

The contract is, in part, as follows:

"The Superintendent, in consideration of the agreements by the purchaser, agrees to sell to the purchaser upon the terms and conditions herein stated and the General Timber Sale Regulations approved April 10, 1920, by the Assistant Secretary of the Interior and which are hereto attached and made a part of this contract, all the merchantable dead timber, standing or fallen, and all the merchantable live timber marked or otherwise designated by the officer in charge for selective logging as required by the attached General Timber Sale Regulations, comprising trees approximately fourteen inches and larger in diameter at a point four and one-half feet from the ground, estimated to be 129,840,000 feet of yellow pine and 102,350,000 feet of Douglas fir and larch on unallotted land within a tract having a total estimated stand of 217,280,000 feet of yellow pine (including so-called "bull-pine"), and 119,840,000 feet of Douglas fir and larch, board measure, all located on allotted and unallotted lands within a tract of about 121,045 acres known as the "Twin Lakes Logging Unit," lying in the northeast portion of the Colville Indian Reservation and described as follows: Then follows a metes and bounds description of the area.

"Excepting such areas now open to entry as may be disposed of by the General Land Office under the homestead acts, patented lands and bona fide mining claims, and areas so rugged and inaccessible that the Commissioner of Indian Affairs shall consider logging thereon to be impracticable or shall reserve all timber for forest and water protection purposes.

"One hundred and four million nine hundred and thirty thousand feet of this timber is on an area of 42,209 acres of allotted land and the Superintendent authorizes the purchaser to enter into separate contracts with Indians holding trust-patented allotments within the limits of the area above defined for the purchase of their timber, subject to Indian Service Regulations, and according to the terms of this General Contract and the General Timber Sale Regulations.

"For and in consideration of the agreements by the Superintendent, the purchaser agrees that prior to March 31, 1944, he will cut and remove all the timber covered by this contract, and will pay to the Special Disbursing Agent for the use and benefit of the Colville tribe of Indians, the full value of the timber, as shall be determined by the actual scale of the timber at fixed rates per thousand feet, board measure, Scribner Decimal C Log Scale, which rates for specified periods of the contract shall be as follows:

"(a) For the first period of the contract which ends March 31, 1929:

"1. For yellow pine three dollars and ten cents.

"2. For Douglas fir, larch, and other species one dollar and two cents.

"(b) For the three-year period of the contract beginning April 1, 1929, the original stumpage prices plus twelve per cent (12%) thereof, or

"1. For yellow pine three dollars and forty-seven cents.

"2. For Douglas fir, larch, and other species one dollar and fourteen cents.

"(c) For the three-year period of the contract beginning April 1, 1932, the prices paid during the preceding three-year period plus twelve per cent (12%) thereof, or

"1. For yellow pine three dollars and eighty-nine cents.

"2. For Douglas fir, larch, and other species one dollar and twenty-eight cents."

There then follows a provision that the Commissioner of Indian Affairs shall read-just upward the prices for each of the periods beginning April 1, 1935, April 1, 1938, and April 1, 1941, but that in no event shall the rate of increase for any of these periods be less than 6% or more than 18% above the prices for the period immediately preceding.

The purchaser agreed, within two months, to enter into separate contracts with such Indians holding trust-patented allotments as might desire to sell their timber, at the prices stipulated for unallotted timber and subject to the same provisions as under the general contract. Certain advance payments and deposits were required under both the general and separate contracts. The purchaser undertook to cut and remove "from some portion of the sale area, including allotments," at least 10,000,000 feet prior to March 31, 1927, and not less than 20,000,000 feet during each twelve months thereafter "until the contract is completed."

There was a provision relating to the obligation of the purchaser in respect of the prompt logging of merchantable timber which might be injured by fire. The nature of this latter stipulation will be indicated in greater detail elsewhere in the opinion.

The applicable provisions of the General Timber Sale Regulations, attached to and made a part of the contract, will be quoted or summarized later.

Several extensions of time within which to commence cutting were granted the purchaser because of right of way and other initial difficulties; and it was not until August, 1928, that cutting actually began. For the purpose of removing the timber the purchaser had meanwhile built a railroad twelve to fifteen miles long at a cost of about $750,000. Operations under the contract appear to have been carried on for a period of a little more than two years, during which time the purchaser logged off and paid for some twelve and one-half million feet of pine and fir. In August, 1930, about eleven million feet of the standing timber were damaged by fire, and this the purchaser refused to log off for the reason that prevailing market conditions made it impossible to do so without incurring loss.

Commencing with November 1, 1930, and continuing at intervals through the winter, an exchange of letters took place between the purchaser and the Government. The former urged that a lower price scale than stipulated be put into effect, saying that if it were forced to live up to the contract an entire suspension of operations would necessarily ensue. Pointing to the current business situation and the condition of the lumber market, it declared that these made it impossible for it to continue with the existing engagement. The inescapable conclusion from these exchanges is that the lumber company declined to remedy existing defaults or to perform further.

By letter dated April 1, 1931, the Commissioner of Indian Affairs formally notified the purchaser that the Department had "canceled" the contract under date of March 26, 1931, and that demand was being made upon the Maryland Casualty Company (which had furnished a $40,000 performance bond on behalf of the purchaser) for the payment of the full penalty of the bond. On June 5, 1931, the purchaser, on its own petition, was adjudged a bankrupt; and in due course appellee was appointed trustee. Thereafter the United States presented its claim growing out of the bankrupt's default. Two amounts were set up, one for the asserted depreciation in market value of the timber remaining uncut, the other for the loss occasioned by the failure of the bankrupt promptly to log the burn. Formal notification was given of a prior claim to the assets of the bankrupt, pursuant to § 3466 of the Revised Statutes, 31 U.S.C.A. § 191.

After a delay of several years there was a hearing before the referee for the liquidation of the Government's claim. The trustee filed objections to its allowance on a number of grounds, not necessary to be enumerated here.

The referee concluded that the contract was enforceable and that there had been an anticipatory breach entitling the Government to rescind or sue for damages. He found that the Government's use of the word "canceled" in its letter terminating the contract was not to be taken as indicative of an intent to rescind, and that there had been no waiver of the right to damages. Without discussion of the latter point, still a subject of debate here, we may say at once that we regard it as having been correctly decided. Restatement of Contracts, § 410, Comment b; see, also, P. J. Carlin Const. Co. v. Guerini Stone Co., 1 Cir., 241 F. 545, 554; Moore v. Beiseker, 8 Cir., 147 F. 367, 378.

The referee was of the opinion that the measure of damages for failure of the bankrupt to complete its contract as to unburned timber was the difference between the contract price and the market value of the timber at the time when the contract should have been performed. Since it was thought impossible to foretell the market value of the timber so many years in advance, and since claimant had offered no proof in that respect and in the nature of...