Interstate Bldg. Corp. v. Hillis

• Decision Date: 28 April 1933
• Parties: INTERSTATE BLDG. CORPORATION v. HILLIS et al.
• Court: Tennessee Court of Appeals

66 S.W.2d 597

17 Tenn.App. 171

INTERSTATE BLDG. CORPORATION v. HILLIS et al.

Court of Appeals of Tennessee, Western Section.

April 28, 1933

Certiorari Denied by Supreme Court Jan. 13, 1934.

Appeal from Chancery Court, Shelby County; M. C. Ketchum Chancellor.

Suit by the Interstate Building Corporation against Mrs. Mattie M Hillis and others. From a decree dismissing the bill complainant appeals.

Reversed and rendered.

SENTER J., dissenting.

Joseph Hanover, of Memphis, for appellant.

Wilson, Kyser, Armstrong & Allen, of Memphis, for appellees.

ANDERSON Judge.

This is a suit growing out of a written contract entered into on March 12, 1929, between the complainant, who is the appellant in this court, and the defendants, who are the appellees. Upon the face of the contract, the defendants agreed to sell, and the complainant agreed to purchase, a certain tract or tracts of land in Shelby county, estimated to contain about 50 acres. The price therefor was to be paid on the basis of $525 per acre for so much of the land as might be taken under the provisions of the contract. However, it is conceded that considered as a whole, the contract is not one of purchase and sale, but rather one whereby the complainant was to subdivide the property described into lots, lay out and grade certain streets, and to devote its entire time and best efforts to the sale of said lots for a period of ninety days, and in case all were not sold within that time, complainant was to have an additional ninety days from September 15, 1929, within which to continue the sale. Upon the property being laid off into lots, defendants were to indicate a cost price or release value on each lot, the aggregate of which amounts was to equal the agreed price of $525 per acre for the entire tract of land. All sales of lots were to be made on the basis of 10 per cent. cash and the remainder to average not less than $10 on every fifty feet of frontage. Upon payment of one-half of the purchase price on each lot, defendants were to execute and deliver a deed to the purchaser. For its services, the complainant was to receive all of the cash payments made on the lots, and defendants were to receive one-half of the monthly payments until they had received for each lot the price fixed in the manner provided for in the contract as the cost or release value of each lot. It was specifically provided in the contract that "all unsold, forfeited or cancelled lots are to revert back to the first parties (defendants), and second party (complainant) is in no way obligated to pay for same."

The suit arises out of the following provisions of the contract:

"As earnest money and in part payment of the purchase price of said property, second parties (complainant) have paid to F. W. Faxon, agent for the first parties (defendants) the sum of $1000.00, the receipt of which is hereby acknowledged. ***

The earnest money of $1000.00 will be credited to second parties on their payments on the lots when one-half of said lots have been sold. In the event second parties shall fail within the time allowed under this contract, to sell one-half of the lots, then this $1000.00 shall be retained by first parties (defendants) as additional price for the property.

Second parties (complainant) upon the execution of this contract, approval of the title and deposit of $1000.00, are authorized to remove the building improvements from said land."

The complainant subdivided the property into 255 lots, laying out the necessary streets and making the necessary improvements in connection therewith as required by the contract. The defendants specified the so-called cost or release value of each lot on the basis provided for. At the expiration of the time limit, complainant demanded the credit or return of the $1,000 deposit made by it, contending that it had sold a substantial number of lots in excess of the required number of one-half. The defendant declined to return the amount of the deposit referred to or to give the complainant credit therefor on the ground that complainant had not sold one-half of the lots within the time allowed by the contract.

Thereupon this bill was filed, seeking a decree against the defendants for said sum of $1,000, on the ground that the complainant had fully complied with all of the terms and conditions of the contract and had sold within the time allowed by the contract one-half of the number of lots into which said property had been divided. The defendants by their answer admitted the execution of the contract, but denied that the terms and conditions thereof had been complied with by the complainant and that one-half of said lots had been sold within the time allowed by said contract, and denied that the complainant was entitled to have credited the earnest money of $1,000 or any part thereof, or to have it or any part thereof returned.

In the court below, the complainant's contention apparently was that it had sold within the time limit fixed by the contract a number substantially larger than one-half of the lots. The defendants contended that a substantial number of the sales alleged to have been made by complainant had been canceled prior to the expiration of the limit fixed in the contract, and that with such sales eliminated, the number of lots sold was less than one-half of the total number. There is no controversy about the total number of lots being 255. The chancellor found that bona fide, uncanceled sales of only 127 lots had been made within the time limit fixed by the contract, and that complainant having failed to show sales of one-half of the total number was not entitled to recover the amount deposited. He accordingly dismissed the bill, and complainant appealed.

The action of the chancellor in finding that only 127 lots had been sold within the time limit fixed by the contract is not challenged in this court. The only error assigned is predicated upon the action of the court in finding that the complainant did not sell one-half of the lots, it being contended that the sale of the number of lots found by the chancellor and conceded by the defendants to have been sold, constituted such a substantial compliance with the terms of the contract as to entitle complainant to recover the $1,000 deposit of earnest money.

In support of this assignment, it is insisted that the doctrine of substantial compliance is applicable to the provision of the contract in question and that the sale of the 127 lots, lacking but half of a lot of being one-half of the total number of lots, was a substantial compliance with the condition of the contract under which the deposit of earnest money was made.

"Substantial performance [of a contract] is said to exist 'where there has been no willful departure from the terms of the contract, and no omission in essential points, and it has been honestly and faithfully performed in its material and substantial particulars,' and the only variance from the strict and literal performance consists of 'technical or unimportant omissions or defects."' Cotherman v. Oriental Oil Co. (Tex. Civ. App.) 272 S.W. 616, 619, citing, Page on Contracts, vol. 5, § 278.

However, it is insisted on behalf of the defendants that in invoking the rule of substantial compliance the complainant is laboring under a fundamental misapprehension of the nature of the rights and obligations assumed and imposed upon the parties to the contract involved. The clear and concise statement of the defendants' contention to be found in the reply brief filed on behalf of the defendants cannot be improved upon. The contention is there stated as follows:

"Complainant never promised to sell one-half of the lots in the subdivision. The sale of one-half of the lots in the subdivision clearly appears from the contract to be not a promise on the part of complainant but an express condition precedent qualifying the obligation of defendants to make payment of or give credit for the $1,000.00. Defendants' only obligation with reference to the $1,000.00 is to give credit of that amount to complainant 'when one-half of said lots have been sold.' The contract expressly provides for the disposition of the $1,000.00 in the event complainant fails to comply with the express condition precedent:

'In the event second parties shall fail, within the time allowed under this contract, to sell one-half of the lots, then this $1,000.00 shall be retained by first parties as additional price for the property.'

This is the situation that is therefore presented by this contract: Complainant undertook to make sales of the lots in the subdivision which it was developing. For its services in making these sales it was to receive a fixed compensation. However, should it have sold within the time set by the contract one-half or more of the lots in the subdivision its compensation was to be increased by crediting it with the earnest money previously deposited by it. Complainant did not sell one-half of the lots. Therefore the condition precedent to any obligation on the part of defendants to make the credit never arose. On the other hand, the condition precedent to the retaining of the $1,000.00 by defendants has happened and defendants are clearly, by the terms of the contract, entitled to retain this money.

The cases cited by complainant with reference to the doctrine of 'substantial performance' deal with situations where parties to a bilateral contract do not by express terms make performance of the contractual obligations of each party expressly conditional on performance by the other party. The law, however, by implication has made performance of one promise the condition of the performance of the other. Where full performance is not made by the party suing on the contract,...