Crahane v. Swan

• Decision Date: 04 December 1957
• Citation: 212 Or. 143,318 P.2d 942
• Parties: Joe M. CRAHANE, Louis Gervais, J. Lee Land, C. F. McEnerney, Ralph E. Yoder, Richard P. Cornish, W. Rex Davis, Donald L. Land and Joseph I. Gervais, co-partners dba Forest Products Company of Oregon, Respondents, v. L. L. SWAN, as Executor of the Estate of Maggie Cameron, Deceased, Appellant, Alfred J. Owens and Ed Seguin, Respondents.
• Court: Oregon Supreme Court

Page 942

318 P.2d 942

212 Or. 143

Joe M. CRAHANE, Louis Gervais, J. Lee Land, C. F. McEnerney,

Ralph E. Yoder, Richard P. Cornish, W. Rex Davis, Donald L.

Land and Joseph I. Gervais, co-partners dba Forest Products

Company of Oregon, Respondents, v. L. L. SWAN, as Executor of the Estate of Maggie Cameron, Deceased, Appellant, Alfred J. Owens and Ed Seguin, Respondents.

Supreme Court of Oregon, In Banc.

Submitted June 12, 1957.

Decided Dec. 4, 1957.

Weatherford & Thompson, Albany, for appellant.

Melvin Goode, Albany, for respondents other than Owens and Seguin (who did not appear).

WARNER, Justice.

This suit is brought by the plaintiffs-respondents, as partners, doing business as Forest Products Company of Oregon, hereinafter called Forest Products, for specific performance of a contract for the purchase and sale of real property, wherein the defendant Maggie Cameron was the vendor. Their prayer is for damages in the amount of $40,781, less the amount of $13,778.79, as an abatement of the balance due on the purchase price and with further credit to defendant of $2,556, being the net damages accruing as result of this court's holding in Seguin v. Maloney-Chambers Lumber Co., 198 Or. 272, 253 P.2d 252, 256 P.2d 514, 35 A.L.R.2d 1412.

It appears that after the trial and before the entry of the decree, defendant Maggie Cameron died and L. L. Swan, as executor of her estate, was substituted in her stead. In view of the fact that defendants Alfred J. Owens and Ed Seguin did not appeal, we will refer to Mrs. Cameron and her substituted executor as the defendant.

The defendant filed a cross-complaint seeking reformation of what will later be described as the Owens contract. From a decree in accordance with the prayer of plaintiffs' complaint (and denying reformation), the defendant appeals.

Prior to August, 1945, C. C. Cameron was the owner of the real property and the timber located thereon, situated in Linn County, and which is the subject of the several contracts in issue. Thereafter, Mr. Cameron during his lifetime or after his death in 1946, his wife, as his sole heir and devisee, contracted to sell from time to time various parcels of their holdings selling timber only to certain vendees and land, with or without the timber, to others. These transactions furnish the genesis of the instant suit. Our interest, however, centers upon 144 timbered acres in the southeast quarter of Section 16, Township 13 South, Range 2 West of the Willamette Meridian.

We begin by setting up in chronological order the various contracts and other instruments evidencing the sales and transfers which are directly or indirectly involved in the matter at bar. They are:

August 3, 1945: By a purchase and sale contract the Camerons sold to H. L. Maloney and J. L. Chambers certain land, and in addition thereto, standing timber on approximately 1,200 acres of additional lands, but not including land or timber on the southeast quarter of section 16. We will refer to this as the Maloney-Chambers contract;

June 18, 1946: By purchase and sale contract Cameron sold to Charles F. Dill the timber standing on the southeast quarter of section 16, which included the controverted 144 acres, and also other property nearby. This we will call the Dill contract; ^* June 17 [sic], 1946: Dill sells the timber on the challenged 144 acres to Maloney-Chambers;

July 8, 1947: The defendant contracted to sell Alfred J. Owens 2,024 acres of land, which included the land from whence her husband had sold the timber under the Maloney-Chambers and Dill contracts. We shall call this the Owens contract. It is the instrument which the defendant seeks to reform;

May 20, 1949: Owens sold his interest in the Owens contract to Seguin, who, on the same date, gave Forest Products Company, Ltd., a three-year option on the interest he acquired;

June 1, 1949: Forest Products Company, Ltd. (predecessor to the present plaintiffs), assigned its option rights in the Owens contract to the plaintiffs, as partners, doing business as Forest Products Company of Oregon, hereinafter called Forest Products;

October 28, 1950: Seguin and Forest Products brought a suit to enjoin Maloney-Chambers from cutting timber on the subject 144 acres. Forest Products then was composed of the same partners who are plaintiffs-respondents here; and on

May 25, 1953: This court rendered its decision in the suit last referred to. Cf. Seguin v. Maloney-Chambers Lumber Co., 198 Or. 272, 253 P.2d 252, 256 P.2d 514, 35 A.L.R.2d 1412.

The position of Forest Products is that they acquired their interest in the Owens contract without notice of the claim of Maloney-Chambers to cut the timber on the 144 acres. Maloney-Chambers, since the decision in the Seguin case, supra, have denuded that acreage of its merchantable timber. This occasions plaintiffs to demand judgment for the value of that timber in the amount of $40,781, less $13,778.79 as the balance due on the Owens contract. We have earlier indicated that such was the decree of the trial court, together with a direction for specific performance on the part of the defendant.

The defendant presents six assignments of error. Inasmuch as several of them so relate to and impinge upon others in subject matter, we will restate them as four propositions: (1) Did the court err in refusing to reform the Owens contract? (2) Did the court err in finding that Forest Products acquired the vendee's interest in the Owens contract without notice of the interest of Maloney-Chambers in the timber on the 144 acres? (3) Did the court err when it refused to measure Forest Products' damages in the amount of the purchase money paid on the contract instead of assessing, as it did, damages for the loss of bargain suffered by Forest Products as assignee of Owens, the vendee, resulting from the timber cut by Maloney-Chambers on the 144 acres. And, lastly, is defendant entitled to a further credit for an amount equal to the value of timber cut during 1946 and prior to the date of the Owens contract?

We will consider these contentions of the defendant in the order above stated and first address our attention to the question of

Reformation.

The defendant by her cross-complaint claims that it was her intention, as the seller, and the intention of the purchaser, Owens, that the Owens contract was one solely for a sale and purchase of land without timber. Part of which timber, we have seen, had been previously sold to Maloney-Chambers under the Maloney-Chambers contract and another part had been sold to Dill under the Dill contract, with Dill's interest being later acquired by Maloney-Chambers. The Owens contract was drawn and executed by Mr. Swan, as Mrs. Cameron's attorney-in-fact and presently the executor of her estate. As signed by the parties, the only provision it contained respecting outstanding timber rights, reads:

'It is understood that this contract is made subject to the rights of Maloney and Chambers to remove the timber on the 1200 acres herein described, to build a pond for storage of logs and right of way to the county highway for a period of eleven years from October 1, 1947.'

But no reference was made, directly or indirectly, to the Dill contract.

The defendant now seeks to improve that exception by the insertion of the word 'as' after the word 'timber' and before the word 'on' in the foregoing provision as it was originally written. The defendant argues that it will then read as originally dictated by Mr. Swan to his office stenographer. The defendant further claims, if it had been so written it would clearly convey notice to all persons of the outstanding rights under the Dill contract to cut timber on the 144 acre tract. In our opinion, the insertion of the word 'as' would not have accomplished that result. At best, it would only create an ambiguity of a character defeating the intent of the scrivener.

Assuming, however, that it would have served the purpose claimed for it, the record does not indicate to us that it supports appellant's prayer for reformation. We need not fortify this conclusion with our reasons therefor, inasmuch as we are of the opinion that no matter how apparently meritorious would be the defendant-appellant's claim of mutual mistake as between Mrs. Cameron and Mr. Owens, she is not entitled to demand a reformation in this suit.

It is an almost universal rule of equity not to grant relief by way of reformation to the injury of innocent third persons such as bona fide purchasers, lien holders and others who without notice have acquired intervening or vested rights and who cannot be placed in statu quo. It is an unalterable rule of equity that such an innocent third person will not be affected by a latent equity and in that respect the equity to reform stands on the same footing with any other equity. 45 Am.Jur. 624, Reformation of Instruments § 68; 19 Am.Jur. 75, Equity § 55; 76 C.J.S. Reformation of Instruments § 59, p. 410; 2 Restatement 968, 979, Contracts §§ 504, 509(2); 5 Williston on Contracts (rev. ed.) 4336, 4339, §§ 1547, 1548; 3 Pomeroy's Equity Jurisprudence (5th ed.) 106, § 776; 3 Elliott on Contracts 552, § 2381. Also see Annotation, 44 A.L.R. 78.

The rule applies with equal force in the reformation of contracts for purchase and sale. 19 Am.Jur. 76, Equity § 56; 76 C.J.S. Reformation of Instruments § 13, p. 338.

This court is committed to the same rule respecting the right of intervening third parties. See Lytle v. Hulen, 128 Or. 483, 275 P. 45, 114 A.L.R. 587, and Hallberg v. Harriet, 93 Or. 678, 184 P. 549.

Morris v. Hillman Inv. Co., 99 Wash. 276, 169 P. 837, in its basic facts is substantially like those present in the instant matter in so far as the right to reformation is concerned and furnishes an outstanding example of a deserving application of the rule that equity will not decree a reformation when it will result in injury of innocent third parties.

The Morris case, supra, turns on the right to...