Barnes v. Rea , 219 Pa. 279 ( 1908 )

Opinion by

Mr. Justice Elkin,

This is a bill in equity asking for the specific performance of a contract in writing. At the beginning of our inquiry it is necessary to determine whether the agreement is an option to purchase, or an absolute contract to convey. The learned court below has found as a conclusion of law that the agreement entered into between the parties was not an option to purchase, but a completed contract of sale, containing mutual and dependent covenants on the part of the vendor and vendee from the date of its execution. We cannot accept this as the proper interpretation of that instrument. Rea was the owner of certain real estate underlaid with coal. Ilustead and Semans were engaged in the business of taking options on coal lands. Among others they secured the agreement, the specific performance of which is asked in this proceeding. It was under seal and signed by appellant. It is perfectly clear that all of the interested parties considered it an option to purchase and not an absolute contract of sale. It was so treated by Rea, party of the first part, and by Ilustead and Semans, parties of the second part, and by their assignee, Barnes, who, in order to exercise his option before its expiration, served upon appellant a written notice of his election to purchase the coal upon the terms specified in the agreement. It is true Rea agreed to sell and convey to Ilustead and So-mans, their heirs and assigns, all of the Pittsburg vein of coal underlying the tract of land described in the agreement upon the terms and conditions therein contained. If these words stood alone, the intention of the parties to enter into an absolute contract to convey would be apparent, and under such circumstances the covenants would be considered mutual and dependent from the date of the execution of the agreement. They, however, do not stand alone, and the intention of the parties must be gathered from a proper construction of the whole instrument. Whether an instrument in writing transferring an interest in real estate shall be construed as an absolute conveyance, or only an agreement to convey, or an option to purchase, depends, not on any particular words or phrases, but on. the intention of the parties to be derived from the instrument itself by a consideration of all its parts, and, when that is doubtful, from the circumstances attending it: Stouffer v. Coleman, 1 Yeates, 393; Neave v. Jenkins, 2 Yeates, 107; Bear v. Whisler, 7 Watts, 144; Swank v. Fretts, 209 Pa. 625; Yerkes v. Richards, 153 Pa. 646; Verstine v. Yeaney, 210 Pa. 109.

An option is an unaccepted offer to sell and convey within the time fixed and upon the conditions set forth in the written agreement: McMillan v. Philadelphia Company, 159 Pa. 142. In the evolution of modern business methods this has grown to be the prevailing custom in making sales of coal lands, and other mineral estates, in many sections of our state. It is important, therefore, that the rights and liabilities of contracting parties in such agreements should be definitely determined. It must be conceded that there is some difficulty in harmonizing the cases in which questions of this character have arisen. The inconsistencies, however, if such they may be called, are more apparent than real. The difficulty is not so much in the principle involved as in the application of it to the facts of a particular case. It has happened in a few instances, that the rules of law applicable only to absolute contracts to convey have been referred to in our decisions as bearing upon the rights and liabilities of parties in an option to purchase. In no instance, however, called to our attention has such a reference been material or controlling in the decision of the issue involved. There can be no such thing as mutuality of covenants on the part of the vendor to convey and deliver a deed clear of all incumbrances and of the vendee to pay, or give security for the payment of the consideration agreed upon, during the option period and before the exercise of the election to purchase. Mutual and dependant covenants must of necessity, in their very nature, relate to an absolute contract between the parties in the first instance, or to an optional agreement which has become absolute by an election to take within the period fixed. An option is a unilateral agreement, binding upon the optionor from the date of its execution, but does not become a contract inter partes in the sense of an absolute contract to convey on the one side and to purchase on the other until exercised by the optionee. The court below was, therefore, in error in holding that the covenants in the agreement under consideration were mutual and dependent from the date of the execution of the agreement. Adams v. Williams, 2 W. & S. 227; Remington v. Irwin, 14 Pa. 143; Keeler v. Schmertz, 46 Pa. 135; Irwin v. Bleakley, 67 Pa. 24; Sylvester v. Born, 132 Pa. 467, relied on to support this doctrine, are cases growing out of absolute contracts for the sale of real estate and have no application in determining the rights of parties to an optional agreement during the option period and before the option has been exercised. The optionor in the present case bound himself, his heirs and assigns, to sell and convey upon the terms and conditions set forth in the agreement, and within the time fixed for the first payment. The optionee could take or refuse to take during that period. If he failed or neglected to exercise his option within the time limited in the manner specified in the agreement, it was at an end. The agreement did not become an absolute contract to purchase until the optionee elected to take. At the very moment he exercised his option, if the election was made in the manner specified in the agreement, it became a binding contract between the parties, and from that time both parties- would be bound by the covenants therein contained.

It must now be determined whether the optionees or their assignee exercised the option in the manner specified in the agreement, which contains the following provision : “ It is expressly understood and agreed that if the first payment aforesaid is not made on the second day of October, a. d. 1899, or within ten days thereafter, this agreement shall be considered as rescinded, and neither party shall be bound thereby.” Having held that the agreement is an option to purchase, it must necessarily follow that the election to take must be exercised in the manner therein required. The only method specified is that contained in the clause above recited, and this provided for the payment of one-fourth of the purchase money on or before a certain date or within ten days thereafter. If the case depended upon this question alone, we would be compelled to hold that failure to make the first payment within the time worked a forfeiture of all rights under the agreement. It appears from the testimony that the appellee here caused a written notice of his election to purchase the coal to be served on appellant on October 11, 1899. This notice was served within the time specified in the agreement, and it is contended that it then became the duty of appellant to tender a deed with abstract of title before he could insist upon a forfeiture of the contract. In other words, even if the covenants were not mutual from the inception of the contract, they became mutual immediately upon the election to take. This would undoubtedly be true if the option had been exercised in the manner required by the agreement. Nor do we consider Corson v. Mulvany, 49 Pa. 88, Smith & Fleek’s Appeal, 69 Pa. 474, and Yerkes v. Richards, 153 Pa. 646, authority for a different doctrine. These cases, it is true, related to optional agreements, but they dealt with the mutuality of parties and not of covenants. Nothing therein decided supports the contention that covenants in optional agreements are mutual and dependent from the date of their execution.

It is argued that it makes no difference whether this contract be considered an absolute agreement to sell, or only an option to purchase, because, if the latter, it was exercised within the time fixed, and therefore the covenants became mutual. This argument would be sound if the option had been exercised in the manner provided in the agreement. It was not so exercised. Notice in writing served upon the optionor of an election to purchase was not sufficient in this case, because a different method was provided by the parties. The payment of one-fourth of the purchase money on or before October 12, 1899, was the condition upon which the option could be exercised. Time was of the essence of this contract, because made so by the parties, and failure to pay within the time specified worked a forfeiture unless waived by the optionor in express terms or by necessary implication.

This brings us to the consideration of what we consider the pinch of the case. Several months after appellee had served appellant with notice of his election to take, he caused a tender of $1,500 in gold to be made appellant, and demanded a deed for the coal and mining rights. On the date when this tender was made, to wit: July 20, 1900, the original optional agreement, which had not been acknowledged, was presented to appellant, who in due form of law acknowledged the same to be his act and deed, and desired it to be recorded as such. This act by appellant is inconsistent with the position now taken that a forfeiture had been asserted or claimed upon failure to make the first payment within the time specified. By this act he acknowledged the original agreement as still in force, and by implication, at least, waived his right to declare a forfeiture. The agreement was subsequently recorded, and thereby public record was made giving notice that appellant acknowledged it to be in force and binding upon him long after the date when he now asks the courts to decree a rescission upon the ground of failure to make payment as required. It would be unjust and inequitable to do so. He is estopped by his own acts from asking for a rescission of the contract for the reasons just given.

While there are many other questions raised by the specifications of error, we do not deem it necessary to discuss them, because the decree entered by the court below must be sustained on the ground stated.

Decree affirmed at cost of appellant.