Martin v. Vector Company, Inc., 73-1249.

• Decision Date: 16 May 1974
• Docket Number: No. 73-1249.,73-1249.
• Citation: 498 F.2d 16
• Parties: Jorge R. MARTIN et al., Plaintiffs, Appellants, v. The VECTOR COMPANY, INC. Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

498 F.2d 16 (1974)

Jorge R. MARTIN et al., Plaintiffs, Appellants, v. The VECTOR COMPANY, INC. Defendant, Appellee.

No. 73-1249.

United States Court of Appeals, First Circuit.

Argued February 7, 1974.

Decided May 16, 1974.

Rehearing Denied June 26, 1974.

COPYRIGHT MATERIAL OMITTED

Herman W. Colberg, San Juan, P. R., with whom Reichard & Colberg, San Juan, P. R., was on brief, for appellants.

Garrard Harris, Rio Piedras, P. R., for appellee.

William M. Simmons and von Baur, Coburn, Simmons & Turtle, Washington, D. C., for appellee.

Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

On July 9, 1969, Vector Company and the individual plaintiffs entered into a written agreement (the Agreement).¹ Plaintiffs agreed to sell and Vector to buy a tract of land in Ponce, Puerto Rico, at a price fixed by a formula not now in dispute. Several years later plaintiffs sued in the Superior Court of Puerto Rico for specific performance, and the case was removed to the district court where it was tried. The district court denied specific performance, and plaintiffs appeal.

The facts, which we recite in detail, are largely undisputed. Plaintiffs had accumulated the tract in question intending that it should be developed and sold to Puerto Rico Urban Renewal and Housing Corporation (URHC) for lowcost "turnkey" housing. Under the "turnkey" program a private developer with access to a site makes a preliminary proposal to sell to the local housing authority a completely developed project. If the authority accepts, the developer then works closely with it developing detailed plans, specifications and more precise estimates. See 24 C.F.R. § 275.6(b). The plans proceed through various stages of approval by the local authority and the Department of Housing and Urban Development (HUD), and after the design and price are finally settled, the developer and local authority enter into a contract under which the latter agrees to purchase the land and described buildings and improvements for a set figure. The contract is backed by HUD's financial commitment, and once it has been signed, the developer is able to secure commercial construction financing. He constructs the buildings and improvements, and eventually delivers the property to the local authority against payment of the agreed price.

Plaintiffs early in 1969 proposed to develop the land and sell the completed project to URHC for an estimated price of $5,565,000. URHC and the local HUD office approved, and some preliminary appraisal activity may have taken place. The district court found,

"At this stage of the proceeding plaintiffs could have engaged a contractor to build the houses in accordance with the plan approved by HUD and it would then have sold the entire project, ready for occupancy, to URHC for the sum of money which had previously been authorized by the local housing authority and HUD. This price would have been equal to that which HUD had agreed was a proper estimate for the completion of the project, covering the cost of the land, the construction, architects\' fees and other services, and the necessary costs incidental to the final completion of the project. On the other hand, the plaintiffs could sell the project as a package to someone else who, presumably, might be interested in taking the project over on the assumption that it could complete it and execute a contract of sale to URHC at a figure in excess of what it had agreed to purchase it for from the plaintiffs, plus the costs of completion."

Plaintiffs chose the second alternative and found an interested party in Vector, a firm which had developed a great number of turnkey projects, most of them in the mainland United States. Its two chief executive officers concluded with plaintiffs the Agreement here sought to be enforced. It was drafted by Vector's Puerto Rico counsel and executed in counsel's office.

Arrangements with URHC were in their formative stages when the Agreement was signed. Plaintiffs and Vector's local representative worked with URHC and HUD to refine the plans and secure the approvals needed before Vector could execute a contract with URHC and take over the project. Proposals were made, and were accepted by URHC and HUD, to increase the number of housing units from 350 to 396 and to increase the total project price. In September, 1970, a feasibility conference was held with government officials at which preliminary plans and pricing were reviewed. URCH and HUD agreed to increase the total project price to a figure in excess of $6,200,000. These changes in units and price were entirely agreeable to Vector, which stood to benefit from them. The district court found that Vector acquiesced and in December, 1970, confirmed by letter its desire to proceed.²

Early in January, 1971 Vector's principals met with plaintiffs. The district court found "as a fact" that plaintiffs told Vector's president that they had received from another party an offer for the project which would net them more than was called for in the Agreement, but that Vector insisted upon its right to the property. Plaintiffs complained that the sale provided for under the Agreement had not yet been consummated. Vector's people responded that they had not been able to obtain bids for completion of the project because they had not yet received detailed plans and specifications then being prepared by the architects.

Upon receipt of the plans and specifications later in January, Vector submitted them to various contractors but, as the district court found, was unable to obtain bids that would permit Vector to break even under the commitment from URHC. Plaintiffs, meanwhile, had secured approval from URHC to substitute Vector as the developer; they advised Vector, and submitted evidence at trial, of their desire and ability to perform the Agreement. Vector does not seriously question plaintiffs' offer and ability to perform, or URHC's willingness to have contracted with Vector at a figure in the neighborhood of $6,225,570.³

Vector's defense is that the July, 1969 contract was, in essence, an option which Vector had an unqualified right not to exercise. Vector points to the fact that it never executed a contract of sale with URHC, and that under clause 5(a) it has no obligation to purchase unless it did so. Vector's reason for not so doing, as stated in its answer, is that in order to execute a contract with URHC, it had to find "a bondable contractor willing to construct the project at a price which would leave a profit for defendant. Such contractor has not been found and therefore the prerequisites of the Purchase Agreement has not been satisfied."

We can dispose of the "option" argument rather rapidly, as did the district court. The terminology and structure of the Agreement, which was prepared by an attorney and was between sophisticated businessmen, is of purchase and sale. "Seller" agrees to sell and "Buyer" states that it is "willing to purchase the same, provided such governmental approvals necessary for the construction of the project are obtained." There is to be a closing "at two o'clock in the afternoon of the fifteenth business day after the execution of the contract as provided in paragraph 4 (a)."⁴ Had Vector been granted an option, its duration would presumably have been set forth and there would have been consideration for plaintiffs' willingness to restrict alienage of the property without any assurance that Vector would buy. See Rossy v. Superior Court, 80 P.R.R. 705 (1958); 1A A. Corbin, Contracts §§ 263, 269, 274 (1963).

The district court likewise rejected, as do we, Vector's argument that, under clause 5(a), it possessed an absolute right, for any or no reason, to decline to complete a contract with URHC, and could raise its own default to avoid a duty to purchase from plaintiffs. Such a literal reading either would make the contract a pure option—a reading we have rejected—or would expose clause 5(a) to Article 1072 of the Civil Code of Puerto Rico:

"The condition shall be considered as fulfilled when the obligated party should voluntarily prevent its fulfillment." 31 L.P.R.R. § 3047.

Or as the Louisiana court has said,

". . . the condition is considered as accomplished, when the debtor, whose obligation depends on this condition, prevents the accomplishment of it . . . . the law does not permit the party whose obligation depends on a condition to allege the non-performance of that condition in defense, where it was through his fault it was not performed." Walls v. Smith, 3 La. 498 (1832).

Under the civil law a condition is deemed "performed" when nonperformance is utterly within the control of one of the parties. See A. Corbin, Contracts § 149 n. 74 (1963), § 767 (1960). See also Article 1068, 31 L.P.R.A. §§ 3043, 3373. However, like the district court, we think the 5(a) condition was not meant to be read so literally as to put nonperformance utterly within Vector's control. We construe it, rather, as imposing some degree of duty upon Vector.

The district court found that Vector's duty under the Agreement was

"within a reasonable time to make a good faith effort to complete the final steps that were necessary to put itself in a position to offer to URHC an acceptable contract of sale if it could do so by the exercise of reasonable business judgment, but that it was not obligated to complete the purchase from the plaintiffs if its failure to make a contract of sale with URHC resulted from its inability successfully to carry out its obligations just stated."

In keeping with this theory the court found that Vector, by expending money to make rough plans, obtaining cost "take offs", and approaching contractors, made "a reasonable effort to place itself in a position where it could do the act which would satisfy the condition." Having done so, and the condition remaining unsatisfied, the court concluded that Vector need do no more.

We do not...