McConnell v. Pickering Lumber Corporation

Decision Date21 December 1954
Docket NumberNo. 13602.,13602.
Citation217 F.2d 44
PartiesJames V. McCONNELL and Margot Murphy McConnell, Appellants, v. PICKERING LUMBER CORPORATION, Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Herbert Bartholomew, Pemborke Gochnauer, San Francisco, Cal., for appellant.

John F. Downey, Ralph R. Martig, Downey, Brand, Seymour and Rohwer, Sacramento, Cal., Charles E. Whittaker, Watson, Ess, Whittaker, Marshall & Enggas, Kansas City, Mo., for appellee.

Before DENMAN, Chief Judge, and HEALY and POPE, Circuit Judges.

HEALY, Circuit Judge.

This is a diversity case involving in major part the local interpretation of section 3399 of the California Civil Code, relating to the reformation of contracts.1

Appellants, citizens of New York, brought suit against appellee, a Delaware corporation with its principal offices in Kansas City, to recover upon a written contract, copy of which was attached and made a part of the complaint. As an alternative to recovery on the contract as written, reformation was asked on grounds of mutual mistake or "mistake of plaintiffs known or suspected by defendants." The court on motion of appellee dismissed the complaint for failure to state a claim upon which relief can be granted. On application of appellants the order of dismissal was vacated and leave to amend given. An amended complaint, omitting the allegation of mutual mistake but retaining that of unilateral mistake, was then filed. Motion to dismiss was again interposed, and the court entered an order stating its belief that a ruling thereon should be deferred until trial. Appellee then answered, and thereafter, prior to trial, an order directing a dismissal was entered; and some two weeks later there followed a judgment of dismissal with prejudice.

Following is a summary of the allegations of the amended complaint: Appellee corporation was engaged in the timber business in California. The corporation, appellant Mrs. Margot Murphy McConnell, and five individuals residing in Michigan, held in undivided ownership 154 parcels of California timberland aggregating 6,172 acres. The tract is commonly known as the "McArthur and Ducey lands." Mrs. McConnell owned an undivided 248.2/1360ths interest (1126.33 acres if divided), appellee an undivided 272/1360ths interest (1234.336 acres if divided), John F. Ducey an undivided 494.8/1360ths interest (2245.402 acres if divided) and the four others owned collectively an undivided 345/1360ths interest (1565.610 acres if divided).

Appellee desired to buy the interests of its co-owners. It prepared the written agreement in question covering purchase of appellants' interest at a price of $75 an acre. The agreement was executed by the parties in April of 1946. It contained an escalator clause, reading:

"10-(A) — Should Purchaser at any time prior to July 1, 1950 acquire the 494.8/1360 fractional interest of John F. Ducey in the property listed in Schedule A from him, his heirs or assigns or representatives, directly or indirectly, or at a partition sale of all the property described in Schedule A at a price higher than that provided herein for Sellers\' interest, then Purchaser and Sellers hereby agree that the price provided in this contract for the Sellers\' interest shall forthwith be adjusted upward by the amount necessary to make up the difference."

(Schedule A referred to is a description by legal subdivisions of the entire tract of 6,172 acres.)

In 1949 appellants discovered that appellee had acquired in 1947 the 494.8/1360 fractional interest of Ducey in 40 of the 154 parcels listed in Schedule A, the acquisition being allegedly at a price greatly in excess of $75 and believed to be approximately $150 per acre. Appellee has made no payment to appellants under the price escalator clause nor notified appellants of the purchase. This failure is believed to be based on appellee's contention that the escalator clause is inoperative because appellee did not acquire the fractional interest of Ducey in all 154 parcels but only in 40 parcels.

It is then alleged that if the clause be construed to mean that appellee must buy before July 1, 1950 the interest of Ducey in all of the property listed in Schedule A, then it was executed by appellants under a mistake on their part as to the meaning and effect of the language of the clause, which mistake was known or suspected by appellee at the time of the execution of the contract. When appellants executed the contract it was their understanding that section 10-A meant that they would receive for their interest in the lands an amount equal to the difference between $75 per acre and any higher price per acre provided in any agreement between appellee and Ducey made prior to July 1, 1950, for the sale of Ducey's interest "in all or any" of the lands.

Appellants were induced into this mistake by the following circumstances: After appellee acquired its interest in the tract in 1944, and in order for it to cut timber on any of said lands, it began negotiations to buy out the interests of all the other owners. These negotiations were largely carried on by the appellants and appellee. All co-owners except Ducey were willing to sell if a fair price could be obtained. In March of 1945 appellant Mrs. McConnell went to Detroit, met with all of her co-owners, and they agreed to sell their interests at a price of $75 per acre, which fact was made known to appellee. In June of that year appellee prepared and submitted a proposed contract at this price containing substantially all the provisions of the contract at issue except the escalator clause. Ducey refused to sign this contract. Thereupon appellee entered into negotiations with appellants for the purchase of their interest and informed appellants that the acquisition of their interest would improve the corporation's position in the event of a partition suit. Appellants refused to sell their interest at $75 per acre unless protected against the acquisition by appellee of any of the other interests at a higher price per acre. This demand was subsequently narrowed to include only the interest of Ducey in view of the size of his fractional interest and his past unwillingness to sell.

In February of 1946 all the other co-owners offered to sell their interests to appellee for $100 per acre, which fact was made known to appellants. In the same month appellee's president proposed to appellants in New York that they enter into two contracts, one at $75 per acre which would be shown the other co-owners, and another at a higher price per acre which would be a private agreement between them. Appellants refused to consider this. It was thus apparent to appellants that appellee desired to acquire all outstanding interests in the property and appellants believed that it would do so prior to July 1, 1950 at a price or prices in excess of $75 per acre. Thereafter the parties hereto entered into the contract in controversy.

In July of 1951 appellants learned that appellee had agreed prior to July 1950 with all the co-owners other than Ducey for the acquisition by appellee of all of their respective interests in all of the lands, and on information and belief it is alleged that the interests were acquired at a price or prices in excess of $75 per acre.

The final paragraph of the amended pleading we quote verbatim: "The contingency of the purchase by defendant corporation of the fractional interest of John F. Ducey in a part of but less than all of said lands was not discussed during the negotiations between plaintiffs and defendant corporation, but the plaintiffs at all times prior to, and at the time of executing said agreement understood and believed and defendant corporation at all said times knew or suspected that plaintiffs under the terms of said agreement understood and believed that plaintiffs would receive the difference between $75.00 per acre and any higher price per acre which might be agreed upon between defendant corporation and John F. Ducey at any time prior to July 1, 1950."

A money judgment was prayed in the amount of the difference between $75 an acre and the amount per acre that Ducey had received. It was asked that in the event the language of the contract was determined not to mean what appellants claim it means, then the escalator clause be reformed to conform with the actual agreement of the parties by addition of the words "any of" after the word "in" and preceding the words "the property listed" in the third line of paragraph 10-A of the agreement — that is to say, the clause should by...

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