Pacific Dock & Terminal Co. v. Los Angeles Dock & Ter. Co.
| Decision Date | 08 July 1930 |
| Docket Number | No. M-46-H.,M-46-H. |
| Citation | 42 F.2d 496 |
| Court | U.S. District Court — Southern District of California |
| Parties | PACIFIC DOCK & TERMINAL CO. v. LOS ANGELES DOCK & TERMINAL CO. et al. |
Farrand & Slosson, all of Los Angeles, Cal., and Gregory, Hunt & Melvin, of San Francisco, Cal., for plaintiff.
Walter M. Campbell, Anderson & Anderson, and Anderson, Anderson & Sheahan, all of Los Angeles, Cal., for defendant Los Angeles Dock & Terminal Co.
O'Melveny, Tuller & Myers, of Los Angeles, Cal., for defendant Pacific Southwest Trust & Savings Bank.
On March 30, 1923, D. M. Reynolds, representing the interests that later became incorporated as Pacific Dock & Terminal Company, the plaintiff in this action and which will be called the Pacific Company, addressed a letter to one of the defendants Los Angeles Dock & Terminal Company, which will be called the Los Angeles Company, asking for an option to purchase 220 acres of Long Beach water-front property owned by the Los Angeles Company at a price of $2,000,000.
D. M. Reynolds at all times acted as agent and under authority of the Pacific Company and as its trustee in the execution of the instruments referred to, and no distinction will therefore be made between him and the plaintiff corporation.
He was unable to make a formal offer because the merger of the interests he represented, being certain steel properties, had not yet been perfected. Therefore an option was asked for in order that time might be had for the completion of the merger.
After referring to rivalry between Northern and Southern California for the location of the enterprise, the communication states:
The Los Angeles Company accordingly gave to Mr. Reynolds the option asked for. Among other things, it contained this provision:
"It is understood and agreed that one of the principal considerations moving from the party of the second part to the party of the first part for this option is the representation on the part of the party of the second part that if this option be exercised it will be exercised by a Steel Company made up by consolidation or otherwise of a number of steel, iron, and coal companies and properties, and that a steel plant will be located on said real property to the advantage of other properties owned by party of the first part in the vicinity thereof, and it is hereby covenanted that this option shall not be transferred or assigned to any person or corporation other than such steel company without the consent in writing of the party of the first part had and obtained."
The option was kept alive by certain payments as therein provided until November 8, 1923, at which time an entirely new agreement was made expressly canceling all previous agreements and fixing the rights of the respective parties to the land involved in the option as in that agreement set forth and not otherwise. This agreement, dated November 8, 1923, while written in the form of an option, required for its exercise on the part of plaintiff payment on that day of an initial sum of $100,000 of the purchase price. By it, the first party, the Los Angeles Company, defendant herein, gave to Reynolds as trustee "the option to purchase the real property hereinafter described, by payment of two million ($2,000,000) dollars to the party of the first part as follows: One hundred thousand ($100,000) dollars on or before the 8th day of November, 1923, * * * and the further consideration mentioned and secured by the trust agreement this day entered into by the parties hereto."
The steel plant originally suggested had, by negotiations between the parties, been changed to a blast furnace for the making of pig iron as a more comprehensive term and more correctly describing the enterprise contemplated by the plaintiff.
Reference to either steel plant, referred to in the agreement of April 9th, or blast furnace was entirely omitted in the body of the agreement of November 8, as was also any reference to any advantage to other property owned by the defendant. It provides, however, for the transfer of a certain one hundred acres of the land described in the agreement to the Pacific Southwest Trust & Savings Bank, as trustee, "under trust agreement to be contemporaneously executed by the parties hereto."
The trust agreement is in the form of a letter signed by the Pacific Dock & Terminal Company, the defendant corporation, addressed to the Pacific Southwest Trust & Savings Bank. It recites the conveyance of the title to one hundred acres of the tract, saying:
By agreement between the parties, the one hundred acres was later reduced to seventy-five acres, and the Pacific Southwest Trust & Savings Bank now holds title to seventy-five acres under the conditions hereinbefore recited.
The Pacific Company did not construct the blast furnace before July 8, 1927, or at any time. On that date it filed its bill in equity in this court, naming as defendants the Los Angeles Company and the Pacific Southwest Trust & Savings Bank, and at the same time obtained a temporary restraining order prohibiting the defendant bank from selling the seventy-five acres under the provisions of the trust agreement. In its bill the plaintiff recites the various steps in its negotiations with the Los Angeles Company, resulting in the agreement of November 8, 1923. The bill charges that the parties did not attempt to agree in advance upon the sum of $500,000 as the amount of actual damage that would be sustained by defendant on failure of plaintiff to construct the blast furnace, and that same was not a part of the purchase price of the property, but that it was a penalty imposed upon plaintiff. That at the time it was neither impractical nor extremely difficult to fix the actual damages that would have been sustained by the Los Angeles Company by the failure to erect the blast furnace. That the sum of $500,000 is a penalty and grossly out of proportion to such damages. That defendant has suffered no actual damage by reason of the plaintiff's default.
The bank, answering, claims that it is a mere stakeholder and abides the result of the suit. The Los Angeles Company by its answer denies the allegations of the bill above recited and affirmatively alleges that the obligation to erect the blast furnace was a part of the consideration for the sale of the land and that the defendant would not have sold the same for $2,000,000 without such additional consideration.
At the opening of the trial the plaintiff claimed that from the admissions of the pleadings it followed as matter of law that the obligation to pay the $500,000 was a penalty and not liquidated damages, and the court therefore had nothing before it except to require the defendant to prove its damages. The defendant, on the other hand, took the position that it was shown by pleadings with equal certainty that on November 8, 1923, it was not only extremely difficult but actually impossible to fix the actual damage that would result to the defendant in the event of failure on the part of plaintiff to erect the blast furnace and therefore the $500,000 was agreed upon as liquidated damages. That in another view the $500,000 was a part of the consideration for...
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Long Beach Dock & Terminal Co. v. PACIFIC DOCK & T. CO.
...Bank of America National Trust & Savings Ass'n, 9 Cir., 72 F.2d 635, 638. Appeal dismissed. 1 Reversing Pacific Dock & Terminal Co. v. Los Angeles Dock & Terminal Co., D. C., 42 F.2d 496. 2 In the record, this agreement is variously designated "trust agreement," "declaration of trust," "esc......