No. 2,458

#### ISAAC C. STEELE *et al.,*Respondents, *v.*FRANCISCO Z. BRANCH, RAMON J. BRANCH, LEANDRO R. BRANCH, FRANK BRANCH AND MOSES CERF, Appellants.

Constettotion op Contracts. — In construing contracts, it is impossible to prescribe any general and uniform rule by -which the question whether the time within which an act is to be performed is of the essence of the agreement, but each case must be decided upon its own circumstances.

Idem. — The general rule of equity is, that time is not of the essence of the contract.

Idem. — In a contract for the sale of land which contains a covenant that the vendees shall, as a part of the consideration, discharge and satisfy at its maturity, a mortgage thereafter to become due, and which also contains a stipulation to the effect, that, should the vendees fail to comply with their part of the agreement, the contract shall be null and void, and the land shall revert to the vendors — time is not of the essence of the contract, and the provision in the contract that the land shall revert to the vendors in case the vendees fail to comply with its provisions, is inserted by way of penalty, to induce a prompt perfoijnance of the contract and would not ea; *proprio vigore*work a forfeiture for failure to perform strictly in point of time, where the vendees acted in good faith and the vendors were not damaged thereby.

J oem. — If the contract also contains a covenant that the vendees shall, within a specified period, intermediate between the time of making and the time for the final performance of the same, make certain improvements on the land sold, and also a stipulation to the effect that if the vendees fail to comply with their part of the agreement the contract shall be held null and void and the land shall revert to the vendors; should the vendees make default and no steps be taken by the vendors towards a recision of *4the contract until after the expiration of the time for its completion, they •will be held as having acquiesced in the breach of the condition, and waived the forfeiture if any occurred thereby

Appeal from the District Court of the Fourth District, City and County of San Francisco.

The facts are stated in the opinion.

*Clarice and Carpentier,*for Appellants.

*First*— Time may be made of the essence of a contract. The doctrine of Lord Thurlow that a purchaser could not so stipulate, rested on no principle, and has long been exploded. In equity, time is held to be of the essence of a contract in case of direct stipulation, or necessary implication. And the conduct of the parties may be resorted to, to show that they regarded time essential. *(Benedict*v. *Lynch,*1 Johns, 0. B. 370; *Wells*v. *Smith,*2 Edw. C. It. 78; *same case,*7 Paige, 22; *Parhin*v. *Thorold,*16 Beav. 65; *Lord Cran-worth,*1 Sim. U. S. 1; *Puclcman*v. *King,*Am. Law Beg, TJ. S. March 1870; *JSÍohes*y. *LordKilmony,*1 De Grex & Sm. 440; *Wisivqdl*y. *McQown,*2 Barb. S. O. B. 270; *L'loyd\. Callett,*4 Bro. 0. C. 469; *Seton*y. *Slade,*7 Ves. 270.

*Second*— Time of performance' of the plaintj^ff’s covenants was of the essence of the contract now sought to be enforced, and being disregarded by them without legal excuse, they have forfeited the right to a conveyance. See the cases referred to above under first point, and also: 3 Leading Cases in Equity, 82-3; Story’s Eq. Jur. §776, and cases cited in notes. *(Barnard*v. *Lee,*97 Mass.; *Scott*v. *Fields,*7 Ohio, 908; *Natson*v. *Barrett,*1 Iowa, 302; *Bodinev. Glad-ding,*9 Harris, 50; *Hipwéll*v. *Knight,*1Y. and Call. Ex. 415; *Hudsons. Bartram,*3 Madd. 447; *Costalee*v. *Till,*IBuss. 376; 1 Sug. on Vend. 359, (7th Am. Ed.)

*Third*— The inadequacy in the agreed price, and the grear increase in the value of the property in questiorwbeyond the price agreed to be paid, render it inequitable to enforce a specific performance where the purchasers have suffered default.

*5*.Fourth*— Tbe plaintiffs did not keep their earlier covenants, to pay $10,000 on account of the mortgage, or to expend that amount in permanent improvements.

The non-performance of these covenants was also a cause of forfeiture.

*Fifth*— The Court erred in deciding that the deed from defendants Branch to defendant Cerf was fraudulent, and in ordering it set aside.

*Williams & Thornton,*and *Campbell, Fox & Campbell,*for [Respondents.

*First*— Time is not of the essence of the contract sought to be enforced. *(Lecombe y. Steele,*20 How. 104; *Ahl*v. *Johnson,*Id. 120; *Farley*v. *Vaughn,*11 Cal. 236; *Bernard*v. *Lee,-*97 Mass. 93; *FdgartonY.Beckman,*11 Paige,352; *BrownY.Covil-laud,*6 Cal. 571; 2 Lead, cases inEq. 667, 696; 3 Id. 74-5, 83-4r-5; Adams, Eq.' 187 (79) (184) and note, 252 (88) and note; *Brashier*v. *Orada,*6 Wheaton, 533, *Taylor*v. *Longioorth,*14 Peters, 172; 7 Paige, 22; *Miller*v. *Bear elal,*3 Paige, 466; *Kercheval*v. *Sioope et al,*6 Monroe, 362; 1 Sugden on Vendors, 310-11 *etseq;*2 Parsons on Cont. 542-544, notes; 6 Madd 20; *Smediberg*v. *More,*26 Wend. 238; *Voorhees*v. *Be Meyer,*2 Barb. 37, 47; Story’s Eq. §§775-6; Willard’s Eq. 292; *Waters*v. *Travers,*9 John. 465.

*Second*— The plaintiffs fully performed on their part all . the covenants of the said contract.

*Third*— Before the maturity of the said note, plaintiff paid on the same upwards of $12,000, and the short delay inpayment of the balance was excusable, having been accorded by the holders of the mortgage. (Story’s Eq. §776, and authorities under first point.)

*Fourth*— The covenant to pay $10,000, on account of the mortgage, or to expend that amount in improvements before the 26th day of December, 1867, was waived by the defendants.

*Fifth*— The price paid was the full value of the property at the date of the contract, and subsequent fluctuations in *6value are not allowed to prevent a specific performance. *(Willarct*v. Taylor, 8 Wall. 571.)

*Sixth*— Tbe plaintiffs bave been in possession ever since tbe date of tbe contract, and bad paid every dollar of tbe purchase money, principal and interest, four days before tbe Messrs. Branch attempted to repudiate tbe contract by a conveyance to defendant, Moses Oerf.

*Seventh*— Tbe plaintiffs fully performed tbe contract upon their part, without unreasonable delay, and tbe defendants were not injured by any matter or thing urged by them in defence.

Crockett, J.,

delivered tbe opinion of tbe Court, Wallace, J., TEMPLE, J., and Bhodes, C. J., concurring.

Tbe plaintiffs and tbe defendants, except tbe defendant Cerf, entered into a written contract in July, 1866, whereby tbe latter sold and agreed to convey to tbe former tbe premises in controversy, consisting of five leagues of land. At tbe date of this contract tbe said lands, or a large portion thereof, were subject to an unsatisfied mortgage made by tbe defendant Francisco *Z.*Branch to one Sparks for tbe sum of $24,000; or thereabouts, which, by tbe terms thereof, was to become due and payable on tbe 26th day of December, 1868, and which bore interest at a stipulated rate. As tbe consideration for said land, tbe plaintiffs undertook, in said contract, to satisfy and discharge tbe said mortgage at tbe maturity thereof, and in tbe meantime to pay tbe accruing taxes on tbe land, and also, on or before tbe 26th of December, 1867, to erect upon the said premises permanent improvements of tbe value of $10,000; or, in tbe event that said improvements so to be erected should be of less value than $10,000, tbe plaintiffs would discharge, on or before tbe said 26th day of December, 1867, so much of tbe principal of tbe said mortgage debt as should be equivalent to tbe difference between tbe value of tbe improvements erected and tbe said sum of $10,000. It was further stipulated in tbe contract, that upon tbe payment by tbe plaintiffs of tbe said mortgage debt and tbe interest, and tbe canceling of said *7mortgage of record and tbe payment of tbe taxes as stipulated in tbe contract, tbe said defendants would convey tbe land to tbe plaintiffs by a good and valid title. Tbe contract also contained a stipulation in tbe following words: “Should tbe parties of tbe second part fail to comply with tbeir part of tbis agreement, then said agreement is to be null and void, and tbe lands, with all tbe improvements thereon, shall immediately revert to tbe parties of tbe first part, and tbe parties of tbe second part shall pay all damages which may result from a failure .to comply with said agreement to tbe parties of tbe first part. Tbe mortgage and mortgage debt were assigned by Sparks to Flora Harloe, wife of Marcus Harloe, and were held by her at tbe maturity thereof. There is evidence in tbe cause tending to prove that tbe price agreed to be paid by tbe plaintiffs was, at tbe date of tbeir contract of purchase, tbe fair market value of tbe land; but that between tbe date of tbe contract and tbe maturity of tbe mortgage the land bad advanced rapidly in value, and at tbe last mentioned date was worth at least $100,000 or more. Tbe proof also shows that tbe plaintiffs failed to erect upon said premises on or before tbe 26th day of December, 1867, improvements of tbe value of $10,000; nor did they on or before tbe said date pay upon tbe principal of said mortgage debt tbe difference between tbe value of tbe improvements actually erected and the sum of $10,000; but prior to tbe maturity of tbe mortgage they bad paid on account thereof a large sum, amounting to $10,000 or $12,000. It appears that a few days before tbe maturity of tbe mortgage, Harloe, tbe bolder thereof (who resides in Santa Barbara county,) sent tbe note and mortgage, together with a release of tbe mortgage, duly executed, to an agent in San Francisco, with authority to receive tbe balance due upon tbe mortgage debt; and upon tbe payment thereof, to deliver to tbe plaintiffs tbe note and mortgage, together with the release; but these papers were not received at San Francisco until several days after tbe mortgage debt bad become due. It further appears that it bad been previously agreed between Harloe and tbe plaintiffs that the money was to be *8paid in San Francisco, and tbat tbe plaintiffs bad made an arrangement witb tbe firm of Hatch *&*Co. to furnish them witb tbe necessary funds to discharge tbe mortgage at tbe maturity thereof; and tbat tbe said firm bad on band tbe necessary sum, which was subject to tbe order of tbe plaintiffs at tbe time of tbe maturity of tbe mortgage, and for some time before and after tbat date. Tbe proof also tends to show tbat on tbe arrival of tbe note and mortgage in San Francisco, tbe agent of Harloe did not insist upon tbe immediate payment by tbe plaintiffs, but consented, either tacitly or expressly, to a few days delay, and full payment was not made until tbe 11th of January, 1869, on which day tbe plaintiffs paid tbe full amount due upon tbe mortgage, whereupon tbe note and mortgage, together witb the release, were delivered to them by tbe agent of Harloe, and tbe release was filed for record in tbe proper office on tbe 16th of January, 1869. Tbe proof also tends to' show tbat a few days after tbe maturity of tbe note and mortgage, and before tbe payment thereof by tbe plaintiffs, tbe defendant Francisco Z. Branch offered to pay to said Harloe tbe amount due upon said note and mortgage, and bad provided tbe necessary sum for tbat purpose; but Harloe declined to receive payment from Branch at tbat time, on tbe ground tbat be bad sent the note and mortgage, witb tbe release, to San Francisco, and supposed tbat tbe money either bad been or within a day or two would be paid by tbe plaintiffs, and for tbat reason be declined for tbe present to receive payment from Branch. On tbe 15th of January, 1869, tbe other defendants conveyed tbe said land by absolute deed to tbe defendant Cerf, who claims to have purchased tbe same for a valuable consideration, without notice tbat tbe mortgage debt bad been fully paid by tbe plaintiffs before tbat time. But it is not pretended that Oerf bad not actual or constructive notice of the contract between tbe plaintiffs and tbe other defendants. On tbe contrary, in taking bis deed be acted on tbe assumption tbat tbe plaintiffs bad forfeited their rights under tbe contract by their failure to perform its conditions. These are tbe material facts of tbe case, and tbe *9action is brought by tbe plaintiffs to compel a specific performance of tbe contract by tbe defendants othenthan Oerf, and to set aside tbe deed to tbe latter as fraudulent and void and a cloud upon tbe plaintiffs’ title. Tbe Court below entered a decree for a specific performance, and annulling tbe deed to Cerf, as prayed for in tbe complaint. Tbe defendants having moved for a new trial, wbicb was denied, bave appealed to tbis Court.

Tbe principal question in tbe case is, wbetber or not tbe stipulated time for tbe payment of tbe mortgage debt by tbe plaintiffs was of tbe essence of tbe contract, and wbetber they bave lost tbeir right to compel a specific performance by tbeir failure to discharge tbe mortgage on or ^before tbe precise day on wbicb it became due, or by tbeir neglect to erect upon tbe premises tbe necessary amount of improvements, or in default thereof to reduce tbe amount of tbe principal' of tbe mortgage debt within tbe stipulate;:! time, to tbe extent of tbe difference between tbe value of the improvements wbicb were erected and tbe sum of f10,000. In construing contracts it is often one of tbe most perplexing questions with wbicb Courts of equity bave to deal, wbetber tbe time within wbicb an act is to be performed is of tbe essence of tbe agreement. In tbe very nature of tbe case it is impossible to prescribe any general and uniform rule on tbe subject, and each case must necessarily be decided upon its own circumstances. In all such cases tbe inquiry is as to tbe intention of tbe parties to tbe contract at tbe time it was executed. If, upon tbe face of tbe contract and from tbs surrounding circumstances, it clearly appears to bave been tbe distinct understanding and agreement of tbe parties that if tbe stipulated act was not performed, within tbe specified time, certain consequences were to follow, and if default be made in tbe performance within tbe time, a Court of equity will give no relief unless a strict performance was pither waived by tbe party or is excused on some special ground of equitable cognizance.

I discover nothing in tbe record to justify tbe conclusion that tbe defendants waived any rights which tbe contract *10gave them in respect to a strict performance bj the plaintiffs of the stipulations as to the time for the payment of the mortgage debt. On the contrary, they appear to have been eager to avail themselves promptly of any apparent default of the plaintiffs in this respect. Nothing in their previous conduct had deluded the plaintiffs into the belief that they did not intend to stand upon their strict rights in respect to this payment; and certainly nothing occurred afterward which could possibly be construed into a waiver. If it should be held that the time stipulated for the payment by the plaintiff's of the mortgage debt vras of the essence of the contract, they have shown no excuse for their default, which of itself would be deemed in a Court of equity as an independent ground of relief. The excuses . alleged are, first, that the note and mortgage, by some accidental delay in the mails, were not received in San Francisco until several days after the debt became due; second, that though Hatch *&*Co. offered them the necessary sum to pay the debt, it suited their convenience better to raise the money by another method, and they delayed the payment a few days for this purpose; third, that Harloe, the holder of the mortgage, consented to this delay. On the first point it is sufficient to say that the note and mortgage, on their face, were payable in Santa Barbara county, and the plaintiffs had the right to pay them there; and if they saw fit to stipulate with Harloe for payment at a different place, they did so at their own risk, and the defendants could not be prejudiced thereby. The defendants were not responsible for the delay which resulted from changing the place of payment. As to the second point, the plaintiffs had no right, if time was of the essence of the contract, to defer the payment to suit their convenience; and if Harloe assented to the delay, however obligatory it may have been as between Harloe and the plaintiffs, the defendants were not bound by a stipulation to which they were not parties, and to which they did not assent. The whole question, therefore, resolves itself into the proposition, whether or not, on the face of the contract, *11and in view of all the circumstances under which it was executed, time was of the essence of the agreement.

The general rule of equity is that time is not of the essence of the contract, *(Brown*v. *Covillaud,*6 Cal. 571; *Brashier v.*Gratz, 6 Wheat. 528; *Ahl v. Johnson,*20 How. U. S. 511; *Hunter*v. *Town of Marlboro,*2 Wood E. M. 168; 3 Leading cases in Equity, 76; *Wells*v. *Wells,*Fred. Ch. 596; *Runnells*v. *Jackson,*1 How. Miss. 358; *Attorney General v. Purmort,*5 Paige, 620; *Hepburn v. Auld,*5 Cranch, 262; *Miller v. Steen,*30 Cal. 407; *Green v. Covillaud,*10 Cal. 317).

Eyen though the contract contain a proyision for forfeiture in case of a failure to perform strictly in point of time, nevertheless, a Court of equity will examine the whole contract in the light of the surrounding circumstances, to ascertain whether it was the real intention of the parties that the party in default should lose the right secured to him by the contract. A stipulation to the effect that in case of a default a party shall lose his rights under the contract, is often inserted by way of penalty, merely with a view to induce a more prompt performance, and not with the intention that a failure strictly to perform, in point of time, shall work an absolute forfeiture. When such appears to have been the intention of the parties, if the party in default afterward tenders a performance promptly and with reasonable diligence, and if the other party has suffered no damage by the delay, and particularly if the property has not materially enhanced in value during the time of the delay, a Court of Equity will not enforce the forfeiture, but will decree a specific performance, notwithstanding the default, provided it appears that the party in default has acted in good faith and gives some reasonable excuse for the delay. In this case, I think the pro-yision in the contract, to the effect that if the plaintiffs should fail, to comply with its conditions, the land and improvements should revert to the defendants, was inserted by way of penalty, merely to induce a prompt performance by the plaintiffs, and was not intended, *ex proprio vigore,*to work a forfeiture in case of a failure to perform strictly in point of time. *12The plaintiffs were paying tbe then fair market value of tb© land, and tbe'principal object of tbe defendants in making tbe sale was to provide for tbe payment of tbe heavy debt secured by tbe mortgage to Sparks. None of tbe parties, apparently, contemplated tbat tbe land was to raise rapidly in value before tbe maturity of tb© mortgage, and inasmuch as tbe property of tbe defendant, E. Z. Branch, was to remain bound for the mortgage debt, and be was to continue personally liable therefor, it was important to him tbat tbe plaintiffs should relieve him and bis property from this liability and save him from further annoyance on account of tbe mortgage debt after its maturity, and tbe provisions for a forfeiture was evidently inserted to secure this result. Tbat result has been obtained without damage to tbe defendants, notwithstanding tbe short delay in tbe payment; and tbe clause for a forfeiture has thus accomplished tbe end for which it was inserted, to wit: *io*secure a discharge of tbe mortgage without damage or annoyance to tbe mortgagor. Tbe excuses offered by tbe plaintiffs for tbe short delay which occurred in the payment, though not of themselves sufficient as an independent ground of equitable relief, nevertheless furnish strong evidence of the *bona fide,*of the plaintiffs, and show that they intended in good faith substantially to perform tbe contract. Tbe clause in tbe contract requiring tbe plaintiffs to erect upon tbe premises improvements of tbe value of $10,000 before December 26, 1867, or in default thereof to reduce tbe principal of tbe mortgage debt before tbat date to tbe extent of tbe difference between tbe said sum of $10,000 and tbe value of tbe improvements erected, was obviously inserted for tbe purpose of protecting tbe defendants against any possible depreciation in tbe value of tbe land, whereby the defendants might, suffer damage in case the plaintiffs failed to discharge the mortgage but, inasmuch as the land greatly increased in value and tbe mortgage was discharged by tbe plaintiffs, no damage to the defendants ensued from the breach of this condition. The purpose for which it was inserted has been faithfully accomplished. In *13addition to this, I think the defendants, bj their subsequent conduct, acquiesced in the breach of this condition and waived the forfeiture, if any had thereby occurred. They permitted the plaintiffs to remain in possession from the 28th day of December, 1867, until after the maturity of the mortgage in December, 1868, and took no steps toward a recision of the contract, and it was not until after default was made in the payment of the mortgage at maturity that the defendants appear to have entertained the belief that any forfeiture had occurred, and then only by reason of the default in that payment. They must be held, therefore, to have waived whatever advantages, if any, they might have claimed from the breach of the condition in respect to the improvements. The views which I have expressed in respect to the clause of forfeiture as affording no sufficient defence against a bill for specific performance under the circumstances disclosed in this record, are fully sustained by the following authorities, and many others which might be cited, to wit: *Secombe v. Steele,*20 How. 104; *Ahl*v. *Johnson,*20 How. 520; *Farley*v. *Vaughn,*11 Cal. 236; *Barnard*v. *Lee,*97 Mass. 92; *Edgerton v. Peckham, 11*Paige, 352; *Brown*v. *Covillaud,*6 Cal. 571; 2 Lead, cases in Eq. 667, 696; 3 Lead, cases in Eq. 74 — 5, 83-4-5; Adams Eq. 187 (79) (184) and note, 252 (88) and note; *Brashier*v. *Gratz,*6 Wheaton, 533; *Taylor*v. *Longworth,*14 Peters, 172; *Wells*v. *Smith,*7 Paige, 22; *Miller*v. *Bear et al.*3 Paige, 466; *Kercheval*v. *Swope et al.*6 Monroe, 362; 1 Sugden on Vendors, 310, 311 *et seq.;*2 Parsons on Cont. 542, 544 and note; *Nelson*v. *Reynolds,*6 Madd. 20; *Smedberg*v. *More,*26 Wend. 238; *Vorhees v. De Meyer,*2 Barb. 37; Story’s Eq. §§ 775-6; Willard’s Eq. 292; *Waters*v. *Travers,*9 John. 465.

I am therefore of opinion that the judgment ought to be affirmed, and it is so ordered.

Sprague J., expressed no opinion.