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Blum v. William Goldman Theatres Inc.

decided as amended november 24 1947: October 31, 1947.


Author: O'connell

Before BIGGS, McLAUGHLIN and O'CONNELL, Circuit Judges.

O'CONNELL, Circuit Judge.

This appeal is taken from a decree of the court below which ordered defendant, hereinafter called "Goldman," (a) to convey to plaintiffs Frank and Sara J. Blum, hereinafter collectively designated as "Blum," two tracts of land, with buildings and improvements thereon, in Upper Darby, Pennsylvania; (b) to assign to Blum the leases and rights Goldman has in those premises; (c) to account for all surplus of income over proper charges during Goldman's tenure, with payment of the surplus plus interest to Blum; and (d) to pay to Blum damages, consisting of that portion of Blum's attorney's fees attributable to the suit for reconveyance, and costs and expenses incurred.

Since jurisdiction in this case is based upon diversity of citizenship,*fn1 the substantive law to be applied is that of Pennsylvania, where the events giving rise to the complaint occurred. Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487.

The following facts appear beyond dispute: In the fall of 1945, the realty in question was under the management of three trustees - the Bryn Mawr Trust Company, Mrs. Mary A. Lawler, and Mrs. Mary A. L. Conway. The Frovident Mutual Life Insurance Company held an overdue mortgage of $603,500 on the property. Warner Brothers, lessees of the 69th Street Theatre,*fn2 was the principal tenant. The property apparently had been available for purchase at least since 1943.

Blum, an investor in real estate, had heretofore utilized the Lionel Friedmann & Company ("Friedmann") real estate firm in connection with certain purchases, rent collections, and one sale. Acting upon Blum's suggestion, Friedmann on November 1, 1945, sought and obtained exclusive authorization to sell the property in question.*fn3 The authorization, signed by Mrs. Conway and one Develin, vice president of the Bryn Mawr Trust Company, granted Friedmann an "exclusive agency" to sell the property for $653,500, "net to the seller. * * * No broker's commission shall be deducted from said sale price of $653,500." The authorization, originally effective until November 17, was later extended to December 15. Blum agreed to pay Friedmann a $5000 commission and a 3% commission as a fee for acting as rental agent in the event that Blum purchased the property. Blum, through Friedmann, negotiated with the mortgagee with regard to the financing; but mutually satisfactory arrangements were not completed.

In 1941, Goldman, operator of a number of motion picture theaters in the Philadelphia area, had indicated to the mortgagee a desire to acquire the property, but no deal was consummated. In early December, 1945, Goldman took renewed interest in the property, apparently because of its potential utility in the vigorous competition between Goldman and Warner Brothers. On December 10, Friedmann represented to Goldman that the former had a $50,000 option on the property. With Friedmann's unenthusiastic acquiescence, one Weiss, a vice president of Goldman, undertook to visit the mortgagee. There he spoke to one Savage, an officer of the mortgagee, and he made mutually satisfactory arrangements for extending and amortizing the mortgage. Savage secured an appointment for Weiss to see Develin, of which expected meeting Goldman thereupon informed Friedmann. Develin was not told, nor did he know, that Weiss was employed by Goldman.

On December 13, Friedmann contacted Blum to determine whether Blum was still interested in the property. Blum was at best noncommittal about buying "because of his inability to make satisfactory mortgage terms." On December 14, however, Blum, with knowledge that Goldman was considering purchase of the property, decided to buy it for cash. In the company of two of Friedmann's representatives, he went to Develin's office and stated his willingness to pay the price stipulated in Friedmann's authorization. Blum tendered as down payment a $5000 check which Develin accepted. An agreement of sale, naming a straw party as vendee, was prepared and signed by Develin. One of the two Friedmann representatives, Shatz by name, asked about the signatures of the other trustees. Develin pointed out that it was late in the afternoon; but Shatz ascertained from Develin where Mrs. Conway and Mrs. Lawler lived, took the agreement to them, and on that same day obtained their signatures, as well as that of the straw party vendee. At about the same time, another of Friedmann's representatives, at Goldman's request, was mailing to Goldman a photostatic copy of the rent roll for the property.

On the morning of December 15, Goldman, appearing for the appointment, was advised by Develin that an agreement of sale had been signed by him the day before. Since it was still unknown to Develin whether the other trustees had signed, Goldman offered to pay $5000 more than Blum had offered. Develin accepted Goldman's check for $55,000. While a contract of sale to Goldman was being prepared, Shatz arrived with the signed agreement of the day before and an assignment in blank executed by the straw vendee. Goldman thereupon suggested that Blum's agreement had not yet been delivered, and that the agreement was therefore not enforceable. A representative of Friedmann told Develin that if he instructed Friedmann not to deliver the agreements, such instructions were desired in writing. Develin, after discussing the situation with the attorney of the trust company, handed the blank assignment to a representative of Friedmann, with the statement, "No instructions." Develin retained both checks. After consulting counsel, Friedmann delivered the Blum agreement to Blum.

Four days later, Blum was notified by Develin that title insurance had been ordered and that Develin was prepared to make settlement with Blum on January 5, 1946. Moreover, Develin delivered to Blum a settlement certificate and the old deed to the property. On "several occasions," however, Develin notified Blum that a higher offer for the property was being considered by the trustees.

Goldman increased the offer to $668,500 and finally to $678,500, together with an indemnity agreement, on January 4, 1946, and January 8, 1946, respectively. The former of the two offers induced the trustees to postpone indefinitely the settlement with Blum; the latter was the basis on which the trustees conveyed the property to Goldman.*fn4

Upon learning that the trustees were about to accept Goldman's final offer, Blum's counsel on January 9, 1946, warned Goldman and the trustees that strict accountability would be sought in the event that withdrawal from the Blum agreement was attempted. On the following day, the trustees conveyed the property to Goldman. Thereafter, the trustees sent Blum a check for $5000; Blum returned it and requested an explanation; the trustees again sent Blum the check, but without an explanation.

A critical factor during the negotiations outlined above was the status of the law of Pennsylvania governing the sale of trust realty. Until 1945, it was settled that a trustee who had agreed to sell trust property was required to repudiate that agreement at any time before final settlement and conveyance if he received an offer substantially higher than the price for which he had contracted to sell the property. Kane v. Girard Trust Co., 1945, 351 Pa. 191, 40 A.2d 466. The Act of May 24, 1945, P.L. 944, 20 P.S. ยง 818, set out in the footnote below,*fn5 changed that substantive rule of property. A decision by a Pennsylvania Orphans' Court, dated December 4, 1945, held the Act unconstitutional. Brereton Estate, 93 Pittsb.Leg.J. 521. Subsequent to the conveyance of the property to Goldman, the Supreme Court of Pennsylvania reversed that decision.*fn6

It is important to note that the only parties to the case sub judice are Frank and Sara J. Blum and William Goldman Theatres, Inc. We are not called upon to decide, and do not decide, what rights, if any, might be ...

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