American Strawboard Co. v. Haldeman Paper Co.

• Decision Date: 07 December 1897
• Docket Number: 499.
• Citation: 83 F. 619
• Parties: AMERICAN STRAWBOARD CO. v. HALDEMAN PAPER CO.
• Court: U.S. Court of Appeals — Sixth Circuit

83 F. 619

AMERICAN STRAWBOARD CO. v. HALDEMAN PAPER CO.

No. 499.

United States Court of Appeals, Sixth Circuit.

December 7, 1897

By an indenture of lease dated June 27, 1891, the American Strawboard Company, a corporation largely engaged in the manufacture of strawboard and other wood pulp products, and owning and operating a number of strawboard mills, demised to George N. Friend, his heirs and assigns, one of its manufacturing plants known as the Rockdale Mills, for a term of three years, the consent of the lessor being necessary to any assignment of the lease. There was also a provision giving to the lessee an option of purchase to be exercised within one year from October 1, 1891, at the price of $25,000, one-fourth in cash, and remainder in equal installments in one, two, and three years, with interest, the deferred payments to be secured by a mortgage and insurance on the premises. Should this option be exercised, the lessor covenanted to convey the property by 'good and sufficient warranty deed.' Among other covenants by the lessee there was one in these words: 'Said second party further covenants and agrees with said first party, its successors and assigns, as part of the consideration of this agreement and as an inducement to said first party to enter into this agreement, that he shall not and will not, during the term created by this lease, or any extension thereof, or in case of the purchase of said premises as above provided within the period of twenty years from date hereof (except in the capacity of officer, agent, stockholder, or employe of said first party), directly or indirectly, as employer, employee agent, officer stockholder, or otherwise, manufacture on said premises, or engage in or be interested in the manufacture on said premises, of strawboard, straw lumber, sheet strawboard, rolled strawboard, wood-pulp board, pulp-lined board, straw wrapping paper; and the sum of $20,000, to be recovered by and paid to the said American Strawboard Company, its successors or assigns, is hereby fixed and agreed upon as and for liquidated damages, to the payment of which said sum of $20,000 well and truly to be made to the said American Strawboard Company, its successors or assigns, the undersigned binds himself, his heirs, executors, and administrators, firmly by this contract, in case of any violation of this paragraph of this contract, by him. It is further agreed that, in case of the violation of this paragraph of this agreement, as a further remedy said first party may, at its option avoid this lease, and enter into possession of the demised premises, and also restrain by injunction the violation of this paragraph of this agreement.'

On the 6th of July, 1892, this lease was assigned by Friend to the appellee, the Haldeman Paper Company, a corporation engaged in the manufacture of paper. This assignment was in writing and indorsed upon the original lease, and was as follows: 'Be it known that I, the undersigned, George N. Friend, have this day, for value received, sold assigned, and transferred all my right, title, and interest of every kind and nature, in and to the foregoing lease to the Haldeman Paper Company, of Lockland, Ohio, and do hereby sell, assign, and transfer to said the Haldeman Paper Company all my said right, title, and interest in and to said lease, the same to have, use, and enjoy the same as I might or could do. ' The American Strawboard Company consented to this assignment, and granted an extension of the option of purchase in these words: 'We hereby consent to the transfer of this lease and the option of purchase to the Haldeman Paper Company, of Lockland, Ohio, and agree to extend said option of purchase to January 1, 1893, granting and giving to them, the Haldeman Paper Company, and their assigns, for the consideration of $1 to us in hand paid, all the right and privileges originally given by us to George N. Friend, under this lease. In witness whereof the American Strawboard Company, by its vice president and secretary, have hereunto set their hands and seals in duplicate this 7th day of July, A.D. 1892.'

On December 31, 1892, the Haldeman Paper Company exercised its option of purchase, and paid the cash installment of the purchase money, and offered to execute its notes, and secure same by mortgage and insurance when the property should be conveyed. A draft of a deed was thereupon prepared by the American Strawboard Company, and submitted to the purchaser for approval. This deed contained a covenant by the grantee with the grantor, its successors or assigns, that the premises should not be used by the grantee, its successors or assigns, for 20 years from the date of the deed in the manufacture of strawboard or any other straw products mentioned in the demise to Friend, and a condition that if this covenant was broken the deed should be null and void, and the title revert to the grantor, its successors or assigns, with a right of re-entry. After this form of deed had been submitted to the purchaser for its approval there ensued a lengthy correspondence between the parties which would but incumber this opinion to fully set out. It is sufficient to say that the position taken by the purchaser was that it was entitled to receive a clear warranty deed containing no covenant whatever restricting the use of the premises, while on the other hand, the American Strawboard Company strenuously insisted upon a deed containing a covenant against the use of the premises for the purposes prohibited by the lease. Such a deed as the Haldeman Paper Company demanded was refused, but a deed in form such as that submitted for approval was the only deed actually tendered by the American Strawboard Company. With this correspondence all effort at an amicable understanding came to an end, and the Haldeman Paper Company commenced this action at law to recover damages for a breach of the covenant 'to convey by a good and sufficient warranty deed'; the plaintiff averring that it had performed all and singular the things required of it to be done by the terms of the lease in pursuance of its option of purchase, and that the defendant had refused, though often requested, to deliver to it a good and sufficient warranty deed as provided for in said lease, and had wholly refused to perform any of the conditions and covenants of the lease touching said option of purchase and the conveyance of said premises in fee simple to the plaintiff. Damages were laid at the sum of $50,000. There was a jury, and verdict for the plaintiff, and judgment thereon for $16,206.25.

Judson Harmon and S. S. Wheeler, for plaintiff in error.

Robert Ramsey, for defendant in error.

Before HARLAN, Circuit Justice, and TAFT and LURTON, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement of facts, .

At the conclusion of all the evidence the jury was instructed to find for the plaintiff, and to assess its damages upon the proofs, under the further directions of the court then given. Several requests made by the defendant below were refused, including one to return a verdict in its favor.

The error assigned upon the instruction to find for the defendant in error involves the substance of the whole case. This instruction has been defended upon two distinct grounds: First, that the covenant of the vendor to convey by warranty deed was broken by the tender to the vendee of a form of deed which enlarged the term during which a particular use was prohibited by the provision in the lease, and by the insertion of a condition terminating the estate of the grantee upon breach of that covenant, irrespective of all questions of the right of the vendor to insert therein a covenant restricting the use in the particular and for the term, and under the penalty provided in the lease and option; second, that the purchaser was entitled to demand and receive a clear warranty deed containing no restrictions upon the use of the property whatever, and that the refusal of the vendor to make and tender such a deed constituted a breach of the covenant to convey by warranty deed.

Assuming, for the present, that defendant in error, as assignee of Friend, was affected and bound by the covenant in respect to a restricted use of the premises, and that the vendor had a right to insert that covenant in its deed, it must then be admitted that the deed which the plaintiff in error proposed to execute was not in accordance with the agreement. The form of deed submitted not only enlarged the prohibition of the covenant of the lessee in respect to time, but included a condition terminating the estate of the grantee upon breach of the covenant. The prohibition of a particular use was limited by the lease, in case of a sale, to a term of 20 years from the date of the lease, and also provided that $20,000 should be paid as liquidated damages for a violation of that prohibition. It was therefore not admissible to extend the restriction to a term of 20 years from date of the deed, nor to alter the agreement as to the consequences in event the covenant was breached. But the defendant in error did not base its objection to this deed upon these matters, but distinctly took the ground, in the correspondence which ensued, that it was not obliged to accept a deed which contained any restriction whatever upon the use of the premises, and declared its purpose to refuse any deed which contained any such covenant.

The suggestion that the objection was limited to the condition terminating the estate upon a breach of the covenant finds no support. The letter of February 20, 1893, from Mr. Baird representing the American Strawboard Company, in reply to the letter of Mr. Richardson, representing the Haldeman Paper Company, of February 17, 1893, specifically inquired...