Court Opinion

ID: 9639359
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:13:55.544268+00
Date Added: 2024-06-11T15:35:28.732055
License: Public Domain

NORTHCOTT, Circuit Judge.
This is a suit in equity brought in August, 1935, in the superior court of Halifax county, N. C., by the appellees, herein referred to as the plaintiffs, against the appellants, herein referred to as the defendants. The original complaint was filed on August 30, 1935, and a temporary restraining order was issued in the superior court enjoining the defendants from disposing of or transferring on the books of the bank certain stock in the Roanoke Bank. & Trust Company. On September 6, 1935, the defendant Simmons Company filed a petition to remove the cause to the District Court of the United States for the Eastern District of North Carolina, and on September 18, 1935, the judge of the superior court, after making certain findings of fact, among which was a finding that the defendants Roanoke Bank & Trust Company, S. T. Peace, H. E. Lee, and W. A. Thorne were immaterial, unnecessary, and improper parties to the controversy, and that their joinder as codefendants was fraudulently made for the purpose of defeating the jurisdiction of the District Court of the United States, entered an. order removing the cause to the federa court.
On September 24, 1935, the defendant Simmons Company moved to dismiss the bill of complaint, and the judge of the district court set down the motion for hearing on the 21st day of October, 1935. On October 16th the defendants filed a motion to dismiss the temporary restraining order. On October 21, 1935, upon motion of the plaintiffs, an order was entered allowing the plaintiffs to amend their bill of complaint.
On October 22, 1935, a decree was entered in the court below' granting a temporary restraining order enjoining the defendants from disposing of the stock in question, to which decree the defendants excepted and moved to dismiss the amended bill of complaint.
On October 28, 1935, the' defendants moved to dissolve the temporary restraining order, and on the same day the plaintiffs again moved for leave to file amendments to their amended bill of complaint, which leave to amend was granted by the court.
On October 28, 1935, after a hearing, the District Judge entered an order granting an interlocutory injunction restraining and enjoining the defendants, during the pendency of the suit, from selling, disposing of, or transferring on the books of the Roanoke Bank & Trust Company any of the stock in question, from which action this appeal was brought.
The plaintiffs are J. W. Crew, Sr., and J. Winfield Crew, Jr., father and son, of near Roanoke Rapids, N. C., where they are engaged in the banking business. The-defendant Simmons Company is a Delaware corporation, having an office in the city of New York, and the defendant Roanoke Bank & Trust Company is a North Carolina banking corporation, with its principal office in the town of Roanoke Rapids, N. C. The defendant S. T. Peace is the president and the defendants W. A. Thorne and H. E. Lee are cashiers of the Roanoke Bank & Trust Company.
The bill, as finally amended, alleges that on August 14, 1935, J. Winfield Crew, Jr.,, acting for himself and his father, went to New York at the request of the Simmons. Company to negotiate with that company for the purchase of its stock in the bank; that the Simmons Company owned all of the common stock ($50,000) of said bank and the $10,000 preferred B stock; that $60,000 of preferred A stock was owned b> the Reconstruction Finance Corporation; that on the visit of Crew, Jr., to New York the Simmons Company, through one Terrell, managing vice president of Simmons Company, gave the plaintiffs a verbal option on the stock owned by the Simmons Company until September 19, 1935, at the price of $117,042.60; that it was stipulated as part of said agreement that Crew, Jr., should return to Roanoke Rapids and make investigation of the assets, real and personal, and the liabilities of said bank in order to determine the real value of the stock of said corporation; that it was agreed that the Simmons Company would afford the plaintiffs opportunity of examining the assets of the bank and also ascertain definitely the liabilities of said bank in order to determine the real value *84of the stock of said institution; that it was further agreed that, if the assets of the bank should not be worth the sum of $117,042.60 as reflected on the books of said bank, “Alfred Terrell, managing vice-president of Simmons Company, would come to Roanoke Rapids, N. C., and together with J. W. Crew, Sr., should determine the reasonable and fair market value of the real estate, banking houses and fixtures owned by said bank and if it was found to be less than it was carried on the books of said bank that there would be a diminution in the price of $117,042.60 to the extent that the value of said real estate was found by the aforesaid parties to be less than it was carried on the books of said bank”; that it was agreed that, if it were found upon investigation that there were worthless assets in the form of notes or other credits of said bank, there would likewise be pro tanto a diminution of the option price; that, in the event that Crew, Sr., and Terrell, acting for the Simmons Company, could not agree on values, a third party, to be selected by them, should be called in and ascertain said values for the purposes of the contract; that, relying upon the promise of Simmons Company, the plaintiffs, at considerable expense in money, time, and labor, proceeded to investigate so far as was known to them the values of the real property held by the Roanoke Bank & Trust Company; that defendant Peace failed to furnish the information desired by the plaintiffs, and refused them the opportunity of investigating the books of the bank; that the said Alfred Terr.ell came to Roanoke Rapids on August 28, and, after consulting with defendant Peace, came to see Crew, Jr., and informed him that they had decided not to comply with the option; that the stock in question was of peculiar value to the plaintiffs, and that they would be irreparably damaged by the failure of the defendant Simmons Company to comply with its contract of option; and that the plaintiffs were ready, able and willing to purchase said stock at the option price, less the deductions to be made in accordance with the provisions of the contract.
An appeal from an interlocutory injunction ordinarily brings up nothing for review but the question whether the judge below in granting the injunction has abused his discretion. Lea et al. v. Vasco Products, Inc. (C.C.A.) 81 F.(2d) 1011, and authorities there cited; Alabama v. United States, 279 U.S. 229, 49 S.Ct. 266, 73 L.Ed. 675; South Carolina Power Co. v. South Carolina Tax Commission, 286 U. S. 525, 52 S.Ct. 494, 76 L.Ed. 1268; Binford v. J. H. McLeaish & Co., 284 U.S. 598, 52 S.Ct. 207, 76 L.Ed. 513; United Drug Co. v. Washburn, 284 U.S. 593, 52 S.Ct. 202, 76 L.Ed. 511; United Fuel Gas Co. v. Public Service Commission, 278 U. S. 322, 49 S.Ct. 157, 73 L.Ed. 402; Meccano, Limited, v. John Wanamaker, 253 U. S. 136, 40 S.Ct. 463, 64 L.Ed. 822.
If the facts stated in the bill, fully conceded, would entitle plaintiffs to a decree, it is apparent that the judge below could not have abused his discretion in granting the temporary injunction. We have then to consider whether the facts stated in the bill in this case, taken as they must be as fully conceded, would entitle the plaintiffs to a decree of specific performance. No fact question arises since the motion for the interlocutory injunction was heard in connection with the motion to dismiss the bill of complaint.
In considering the questions arising on the pleadings, we are confronted at the outset with the proposition whether that which was left to arbitration was a vital and essential part of the contract or was a subordinate or subsidiary question and merely a detail. We are of the opinion, from the statements in plaintiffs’ bill, that the matter left to be arbitrated, in the event of a disagreement between Crew, Sr., and Terrell, was a. vital matter and was of the very essence of the contract. While, as alleged in the bill, the sum of $117,042.60 was fixed as the price of the stock, yet it was provided that from this price so fixed should be deducted any overvaluation of assets on the books of the bank, and the bill alleges that the investigation to be made of the assets and liabilities of the bank was in order to determine the real value of the stock.It is evident from these allegations in the bill that the price as fixed was not regarded by either party as the real price to be paid, but simply was fixed as a starting point from which the price to be paid was to be ascertained by deduction of certain amounts yet to be determined, and, in the event of disagreement between the parties, to be determined by arbitration. Such an agreement to arbitrate as is set up in the plaintiffs’ bill is in effe'ct and substance an agreement to fix the real price to be paid by arbitration. Where the price to be paid is to be fixed by arbitration, courts *85will not specifically enforce the contract, for in such cases the matter referred would go to the very heart of the contract, and it is well settled that specific performance will not be decreed of a contract which cannot be enforced except through the medium of arbitrators. Milnes v. Gery, 14 Ves.Jr. 400; 25 R.C.L. 300; 68 A.L.R. 159, note; Mutual L. Ins. Co. v. Stephens, 214 N.Y. 488, 108 N.E. 856, L.R.A.1917C, 809; Red Cross Line v. Atlantic Fruit Company, 264 U.S. 109, at pages 120, 121, 44 S.Ct. 274, 276, 68 L.Ed. 582; Georke Kirch Co. v. Georke Kirch Holding Co., 118 N.J. Eq. 1, 176 A. 902; Federal Law of Contracts, vol. 1, § 219. See Electric Management & Engineering Corporation v. United Power & Light Corporation (C.C.A.) 19 F.(2d) 311; Castle Creek Water Co. v. City of Aspen (C.C.A.) 146 F. 8, 12, 8 Ann. Cas. 660.
In Pomeroy’s Specific Performance (3d Ed.) § 309, that author says in discussing this point: “Wherever it is an essential part of a contract for the sale of property that its price is to be fixed by valuers, whose appointment is also therein stipulated for, a specific performance will not be decreed unless the amount has been determined according to the provision, and in such a final manner as to become a term of the contract. The parties having seen fit to rely upon the judgment of persons selected by themselves, the court has no legitimate means of making the award itself, or of directing it to be made by a master or an expert, for this would be substituting another contract in the place of the one to which the parties had assented. It makes no difference whether the parties, or one of them, fail to appoint the valuers, or whether, on being appointed, they neglect or refuse to make an award, or whether one of the parties refuses to permit his nominee to go on. If, however, the provision for a valuation is not an essential element of the agreement, but is merely collateral or incidental, or auxiliary to its main scope and purpose, the court will specifically execute the contract — if otherwise a proper one — and in so doing will, in some manner, fix upon the value. The strong tendency of the recent decisions is toward the construction of contracts so as to admit this latter rule, and to limit the operation of the doctrine as first stated.” See, also sections 149, 150, and 151.
In Castle Creek Water Co. v. City of Aspen, supra, Judge Sanborn says: “But where the stipulation for the appraisers is a condition or the essence of the contract of sale, and a refusal to enforce it will leave the parties in their original situations when the agreement was made, a court of equity will not specifically enforce it.”
Here the agreement to arbitrate concerns a question that is an essential part of the contract, and the plaintiffs have their remedy for any damages that may have resulted from a breach of contract, in an action at law.
In Red Cross Line v. Atlantic Fruit Company, supra, Mr. Justice Brandéis lays down the rule as follows: “The federal courts — like those of the states and of England — have, both in equity and at law, denied, in large measure, the aid of their processes to those seeking to enforce ex-ecutory agreements to arbitrate disputes. They have declined to compel specific performance, Tobey v. County of Bristol, Fed. Cas.No.14,065, 3 Story, 800, 819-826.” .
We have failed to find any decision holding that a contract for the sale of personal property which leaves the price to be fixed by arbitration is specifically enforceable.
There is a serious question as to whether the contract as set out in the bill is not too vague and indefinite to permit of specific performance by a court of equity and whether the owner of all the common stock of a bank has any right to contract to give the prospective purchaser, of the bank stock, a right to inspect the books of the bank when the interest of holders of certain classes of preferred stock are not consulted and when the officials of the bank have not concurred in the permit to examine the books. We are of the opinion that the corporate entity of the bank cannot be ignored to this extent, especially in view of the holding of preferred stock by the Reconstruction Finance Corporation, which was in no way a party to the option contract. New Colonial Ice Co. v. Helvering, Commissioner, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348.
There are a number of other points raised, but, in view of our conclusion, above set out, that the provision for arbitration as alleged in the bill was a provision with respect to a vital part of the contract, and therefore made it such a contract as equity will not specifically enforce, it is not necessary to discuss- the other questions raised.
*86The facts stated in the bill, fully conceded, do not set up a, contract that a court of equity will specifically enforce and, in granting the temporary injunction, the judge below granted equitable relief where no equity existed. Meccano, Limited, v. John Wanamaker, supra. The granting of the temporary injunction was an abuse of judicial discretion.
The.decree of the court below will accordingly be reversed, and the cause remanded, with direction to dismiss the bill. Reversed.