Court Opinion

ID: 9467914
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:59:34.713267+00
Date Added: 2024-06-11T17:40:35.470703
License: Public Domain

WALLACE, Circuit Judge,
dissenting:
I respectfully dissent. I agree with the majority that what the contracts say and what the parties did are not in dispute. Yet, this is not a case that turns on questions of law, which are freely reviewable. This is not a case of contract interpretation in which the result depends solely on the application of legal principles to settled facts. See Libby, McNeill and Libby v. City National Bank, 592 F.2d 504, 512 (9th Cir. 1978). Rather, it depends on the characterization of the events surrounding the formation of the contracts, and what the parties intended to accomplish by their actions. Because I think these determinations necessarily dictate the legal consequences and are at the heart of this case, I agree with the position, apparently adopted by the majority, that our function on appeal is limited to determining whether the district court’s interpretation was clearly erroneous. Kittitas Reclamation District v. Sunnyside Valley Irrigation District, 626 F.2d 95, 98 (9th Cir. 1980), cert. denied, - U.S. -, 101 S.Ct. 861, 66 L.Ed.2d 802 (1981); United States v. Ironworkers Local 86, 443 F.2d 544, 549 (9th Cir.), cert. denied, 404 U.S. 984, 92 S.Ct. 447, 30 L.Ed.2d 367 (1971); Lundgren v. Freeman, 307 F.2d 104, 113-15 (9th Cir. 1962). Cf. Commissioner v. Duberstein, 363 U.S. 278, 289-91, 80 S.Ct. 1190, 1198, 4 L.Ed.2d 1218 (1960) (determination of whether a particular transaction is a gift under the Internal Revenue Code is a question of fact, and the trial judge’s determination must stand unless clearly erroneous). The majority concludes, in part, that the district court’s holding that rescission occurred was “wholly unsupported by evidence.” I disagree and conclude that the district court’s interpretation is not clearly erroneous, and, therefore, I would affirm.
I
The district court concluded that Subsidiary timely elected to exercise its rights under the Repurchase Agreement. The evidence shows that Subsidiary gave notice of its election on February 11, 1976, after the FEA promulgated its regulations on or about February 1, 1976. On February 13, 1976, Mobil and Subsidiary agreed to put off the Repurchase Agreement deadline until April 1, 1976, pending a new set of FEA regulations due on March 1, 1976. On March 25, 1976, Subsidiary again contacted Mobil, indicating that it was exercising its rights under the Repurchase Agreement. Subsidiary also made two alternative offers to purchase the Property back from Mobil. On April 9, 1976, Mobil and Subsidiary entered into an agreement. That agreement recited that Subsidiary had exercised its option to require Mobil to repurchase the Property. It further stated that Mobil would reduce the price of the Property either to $100,000, or to $200,000 with Mobil also conveying pipeline facilities to Subsidiary. The consideration stated for this reduction in price was Subsidiary’s “waiver ... of its right to rescind the purchase of the Property.” On May 7, 1976, Mobil accepted the second of the two alternatives.
I conclude that the interpretation of this April 9 agreement is the crux of this case. If the April 9 agreement merely modifies the December 31 sale and replaces the Repurchase Agreement, then Stinnett may recover under the Basic Agreement. If the April 9 agreement was a new contract for sale formed after the operation of the Repurchase Agreement, then Stinnett may not recover under the Basic Agreement. Because the April 9 agreement is contradictory on its face, however, it is difficult to *586interpret. It recites that Subsidiary exercised its right to rescind, then provides for Subsidiary’s waiver of that very right.
The district court held that “rescission was accomplished in substance.” That interpretation is not clearly erroneous. By giving notice to Mobil on March 25, Subsidiary exercised its option under the Repurchase Agreement. Under the terms of the Basic Agreement and the Repurchase Agreement, the contracting parties had certain rights and duties upon Subsidiary’s notice. Thus, after March 25, Subsidiary had a present right to enforce the terms of the Repurchase Agreement. It is this present right to enforce that Subsidiary waived in the April 9 agreement, not the right to exercise its repurchase option. As things stood after the March 25 notice, the Repurchase Agreement required Mobil to repay $800,000 in cash and return the $200,000 note to Subsidiary, and required Subsidiary to reconvey the Property to Mobil and to secure the reconveyance of the trust deed from UCB. The Basic Agreement relieved Damson and Subsidiary of their obligations to pay Stinnett, required Stinnett to reimburse Subsidiary for any sum in excess of $800,000 expended in securing the trust deed from UCB, and required Damson to sell all the shares of Subsidiary stock to Stinnett for $100.
'Subsidiary and Damson, however, wanted to keep the Property, but at a lower price in light of the new regulations. Mobil did not want to repurchase the Property. Subsidiary and Mobil could have gone through all the steps provided in the Repurchase Agreement, and begun negotiations anew freed from contractual restraints. If they had done this, the terms of the Basic Agreement would have extinguished Stinnett’s rights. Instead, they chose to take the most direct route to reach their goal. Therefore, Subsidiary retained the Property, and Mobil conveyed to Subsidiary $600,-000 in cash, the $200,000 note, and the pipeline facilities. Arguably, the form of this transaction is a mere reduction in price as established in the Basic Agreement. That argument, of course, is undercut by the addition of the pipeline facilities. Nevertheless, in substance it is a new purchase of the Property by Subsidiary after Mobil’s repurchase. For if Subsidiary had not exercised its repurchase rights, Mobil would have had no reason to enter into the April 9 agreement. I cannot agree with the majority that the district court’s holding that “rescission was accomplished in substance” was “wholly unsupported by evidence.”
II
Both Stinnett and the majority rely on Young v. New Pedrara Onyx Co., 48 Cal.App. 1, 192 P. 55 (1920), for the proposition that when a notice of rescission is accompanied by an alternative proposal, which is accepted, the original contract has not been rescinded, but has been modified. This reliance is misplaced.
In Young, Blochman conveyed all the stock of a Mexican company to a California company in exchange for all of the stock of the California company. The California company had an option to repurchase its own stock for $160,000. The California company was to sell its stock to the public, with the proceeds going to Blochman. Id. at 6-7,192 P. at 57. When it appeared that the California company was not sending the proceeds to Blochman, Blochman attempted to rescind the contract. In his notice of rescission, Blochman made an alternative proposal, under which he would relinquish his claim to the stock sold by the California company, and transfer all the California company’s stock back to it. In return, the California company would issue Blochman some of its stock, reconvey to him all the Mexican company’s stock, and pay him $5,000 cash. The board of directors of the California company adopted a resolution accepting Blochman’s alternative proposal and authorizing the officers of the company to effect the transfer. Id. at 7-9,192 P. at 57-58. The plaintiffs, stockholders of the California company, sought to void this resolution and sought an accounting from Blochman for everything he received pursuant to the resolution. Id. at 22, 192 P. at 63-64.
The California court rejected the plaintiffs’ prayer for an accounting because title to the property had never passed to Bloch-man. Id. at 22, 192 P. at 64. First, the *587court held that Bloehman’s notice of rescission was probably ineffective because it misstated the terms of the contract. Thus, the notice purported to rescind a contract that had never existed. Id. at 22-23,192 P. at 64. Second, the court, assuming there was a mutual agreement to rescind, held that the resolution itself was insufficient “to revest Blochman with title.” Id. at 23, 192 P. at 64. Thus, the court was concerned with who had title to the property, not with whether the transaction was a rescission or a modification. The court stated that the resolution purported to create “more than a mere ‘rescission,’ ” and that it did, in fact, create an executory agreement. Id. at 26, 192 P. at 65. The purpose of the court’s discussion, however, was to show that the agreement was executory, not executed, and that, therefore, no title had passed. Id. at 27, 192 P. at 65.
The case before us presents no issue of title. It is totally irrelevant who had title to the Property after Subsidiary’s March 25 notice. The issue before us is not whether a rescission of the contract of sale had occurred such that legal title to the Property had passed. From a strictly technical point of view, there is no attempt to undue a contract in this case. Rather, there is an attempt to invoke a contract: the Repurchase Agreement. The issue is whether Subsidiary, by giving notice, triggered the Repurchase Agreement. If it did, it then had a present right to require Mobil to repurchase the Property such that Subsidiary’s subsequent purchase of the Property can be considered a new contract for sale, rather than a mere modification of the original sales contract. Thus, the Young analysis of whether a rescission had been effected and whether title had passed is inapplicable to this case.
Ill
There is a troublesome aspect to the district judge’s interpretation of the facts. His analysis rests on the premise that the Repurchase Agreement was triggered by Subsidiary’s March 25 notice. Yet, Damson never complied with the requirement of the Basic Agreement that it sell all of Subsidiary’s stock to Stinnett for $100. This problem can be disposed of in two ways. First, it has not been raised. Nowhere in the pleadings or briefs does Stinnett make the argument that the Repurchase Agreement was triggered and that he was therefore entitled to specific performance of the sale of stock term. Second, the contemplation of the parties in drafting that term was that Subsidiary would be a mere shell when the stock sale to Stinnett would take place. The parties could not have contemplated that Stinnett would obtain control of Subsidiary for $100 regardless whether Subsidiary had assets valued at $200,000 or had no assets at all.
The foregoing interpretation of the facts of this case is certainly not the only logical or correct one. A good argument could be, and has been, made for the opposite view. Our task, however, is not to interpret the facts anew, but rather to determine whether the district court’s interpretation was clearly erroneous. I believe that the district court’s interpretation is not clearly erroneous, and, therefore, I would affirm.