Agnew v. Landers

278 P.2d 970, 59 N.M. 54

• Court: New Mexico Supreme Court
• Decided: January 11, 1955
• Docket: 5743
• Status: Published

Opinions

LUJAN, Justice.

This is an action to rescind a certain warranty deed, issued and delivered by the plaintiffs to defendants for real property known as the Casa Loma Lodge, situated in Bernalillo County, on account of alleged fraudulent representations, and to recover certain special damages.

In negotiating the sale of the Apache Lodge here involved, the defendant G. V. Landers and his agent, F. L. Pinkston, represented to the plaintiffs the following: (1) That the income from said lodge would be approximately $2,000 per month during the summer and approximately $1,200 per month during the winter; (2) that the First National Bank of Albuquerque, New Mexico, held a first mortgage on said property in the sum of $77,000; (3) that a collateral security was a better proposition than a second mortgage; (4) that W. R. Beeble was a man of considerable experience and financial means and reliable. These statements were false and fraudulent, and made for the purpose, and with the intent, of inducing plaintiffs to enter into the contract of sale. Plaintiffs believed these representations to be true, relied on them, and were induced thereby to enter a contract to purchase the property which was executed on September 20, 1949.

The case was tried to the court. It resolved the issues in favor of the plaintiffs (appellees) and the defendants (appellants) have perfected this appeal.

The defendants assign numerous errors alleged to have been committed by the trial court. Their major contentions are that (1) there is no substantial evidence to support the court’s findings that defendant Landers and his agent Pinkston made false representations or fraudulently withheld facts; (2) the evidence establishes that .the plaintiffs did not rely on the alleged representations and were not entitled to rely thereon; (3) there is no substantial evidence that plaintiffs were damaged by the alleged misrepresentations; (4) the parties cannot be placed in status quo due to delay of plaintiffs in taking action to rescind after full knowledge of all facts; (5) the court’s conclusions of law are not supported by its findings or substantial evidence. The defendants are confronted with the substantial evidence rule. It is a difficult obstacle in their path.

As to the income the Apache Lodge would produce the plaintiff, Samuel C. Agnew, testified as follows:

* * * * * *

“Q. Did you ask Mr. Landers and Mr. Pinkston any questions concerning Apache Lodge ? A. A great many.

“Q. Tell the court what you asked, and what the answers were? A. I asked about the income on the Apache Lodge, and Mr. Landers said he had only had it a few days, and that his understanding was that the income was around $2000.00 a month in the summer, and would drop to around $1200.00 a month in the winter, and that therefore $800.00 payments on the mortgage would not be too severe. ******

“Q. What other questions did you ask? A. I asked Mr. Landers about the books; whether I could see the books and records on the Apache Lodge, and Mr. Landers explained that Mr. Beeble had only been out there a few days, and therefore, had no records to exhibit as yet, and that the former owner, whose name I believe was Truitt had left town, and therefore no books were available for the past.

On cross-examination he testified:

# ‡ ‡ ‡ *

“Q. Are you sure that if he was there at that time or any other time, the statements he made to you was that there were no books; that he had just taken over the place for a few days, and that the only thing he could say was that there were so many units and that if they were filled to capacity it would be somewhere around $2000.-00 a month? A. No, he made no representation on what the income would be if all the units were filled, or anything like that; he represented that to be the average, or the approximate average income for the warm weather and the cold weather.

“Q. Did you ask him where he got his understanding of this thing? A. 1 did.

“Q. What did he say? A. From the former owner.

' “Q. The former owner told him that? A.' Ye's.

“Q. Who was that? A. I have never met the gentleman, but his name was Truitt.”

The record disclosed the following income taken in by the Apache Lodge for eight months subsequent to the transaction and before the plaintiffs gained knowledge of the true state of affairs.

1949

Sept. 12 days only $684.00 (Fair week)

Oct. 659.00

Now. 495.00

Dec. 400.00

1950

Tan. $250.00

Feb. 247.00

Mar. 361.00

Apr. 440.00

As to the First National Bank of Albuquerque, New Mexico, being the holder of a first mortgage on the Apache Lodge the plaintiffs testified as follows:

“Mr. Agnew:

y¡¡ : * *

"Q. What did you tell him ’ (Pinkston) about the proposition? A. I asked him some questions about the Apache Lodge, and he told us there was a $77,000.00 mortgage on the 'Apache Lodge, and I asked him who this mortgage was payable tóV and' he told us the bank. I asked him which-bank, and he -told us the First National Bank.

% ij? ♦

“Q. What transpired in the conversation you had at that time between Mr. Pinkston, Mr. Landers and yourself? A. Mr. Landers came on down from his room, and the three of us went in Mr. Pinkston’s inner office and sat down, and Mr. Landers started explaining the deal.

“Q. Tell the court what he said? A. Mr. Landers told me that the mortgage on the Apache Lodge was approximately $77,000.00, and that the man’s name with whom Mr. Landers had traded was Beeble, and that he Lad a note from .Beeble for $23,000,00.

#

“Q. Did you ask him any other questions ? A. I was still interested in 'this mortgage of $77,000.00, ánd I asked Mr. Landers who that mortgage Was payable to, and how it was paid. 'He said it was payable at the First National Bank in Albuquerque, and That the terms were $800.00 a month, including interest and principal. .

“Q. Even though you knew there was a mortgage held at the First National Bank for $77,000.00, why did -you go into a transaction with • that large a mortgage? A. I considered the First National Bank was a very reliable institution, and that I would have faith in the fact that if they had a $77,-000.00 mortgage, that the property must have considerable value; and, also the fact that the bank might reduce those $800.00 payments in case Mr. Beeble had any difficulty in fulfilling his obligations.

“Q. In other words, you felt you would have the bank to deal with if there was any trouble? A. Yes.”

Mrs. Agnew testified as follows: ******

“Q. Do you remember whether or not any figures were mentioned at that particular time ? A. There was a figure of the mortgage on the Apache Lodge which was mentioned, $77,000.00 was mentioned, yes.

“Q. Was it mentioned as a mortgage? A. Yes.

“Q, When you were in Mr. Krannawitter’s office, discussing this transaction, what statement was made that the.First National Bank had a $77,000.-00 mortgage? Did you believe that statement, and rely upon it in' the transaction? A. Yes, I believed that the First National Bank had it.

“Q. You discussed that matter many times with your husband ? A. Yes. I didn’t have any reason to disbelieve it.”

On January 16, 1950, Mr. Agnew wrote Mr. Clyde Hill, Vice-President of The First National Bank of Albuquerque, New Mexico, a letter, the pertinent part of which reads as follows:

“Enclosed you will find a letter from Mr. Krannawitter in regard to the matter of the Apache Lodge for which your bank holds first mortgage.”

On January 23, 1950, Mr. Hill replied as follows:

“After investigation, I have found that we do not have any direct or indirect interest in the $77,000.00 mortgage on the Apache Lodge.”

* * * * * *

“Q. This letter, which you received from the bank was the first indication you had that the bank did not háve a first mortgage on the Apaché Lodge? A. It was.

“Q. The first time „you had heard anything about it? A. Yes.”

As to the representations that a collateral security was better than a second mortgage Mr. Agnew testified as follows:

“Q. Did you object to the fact thaf you would have a second mortgage? A. Yes, I brought up the fact that although I had very little dealings in real estate, that I had always understood that a second or third mortgage was greatly inferior to a first' mortgage, and I made some objection to the fact that it seemed that I was getting a second mortgage.

“Q. What was said in answer to that? A. Mr. Landers and Mr. Pinkston both assured me that it was not in reality a second mortgage; that it was collateral security; that in this deal I would be secured by an absolute holding on the Apache Lodge.

“Q. Did they say whether that was better or worse than a second mortgage? A. They represented that it was better. Mr. Landers said he didn’t like to fool with second mortgages himself, but a collateral security was a better business proposition than a second mortgage.”

As to the representations that W. R. Beeble was an experienced auto court operator, a man of financial means and reliable, Mr. Agnew testified:

* * * * * *

“Q. After you had finished discussing the mortgage, did you ask Mr. Landers any questions concerning Mr. Beeble? A. Yes, I wanted to know what kind of man Mr. Beeble was, where he came from, and what his occupation was ?

“Q. What was the answer to those questions? A. Mr. Landers told me that Mr. Beeble, first of all, was a tourist court owner in Amarillo, or had been, and that as such, he was experienced in the running and operation of tourist courts and would therefore have an advantage in this new venture in the Apache Lodge; he would have an advantage since he already had experience, and that Mr. Beeble was a man, in addition to that, of considerable financial means; that he had property in and around Amarillo, and he mentioned specifically that he had other ranch property situated outside Amarillo.

‡ * $ $ iji if,

“Q. Tell us about that discussion? A. I asked him if he didn’t think there should be some' principal' payments made on the $23,000.00 note; that the way it seemed to me was that the note could run to the last day of the five years and the whole $23,000.00 would fall due, and would make a terrific load for any one to pay, and Mr. Pinkston said he understood that Mr. Beeble was going to sell some of his property that he had in Amarillo, and was going to try to pay on the principal and interest on that note as quick as possible.”

****** Mrs. Agnew testified as follows:

“Q. Was there any discussion at that time concerning the income from the Apache Lodge, or the financial ability of Mr. Beeble? A. There was no discussion of the income. It was said that Mr. Beeble was a man of financial responsibility.

“Q. Who said that? A. That was told to Mr. Agnew and myself the first day Mr. Pinkston was out to the house, I believe.

“Q. Mr. Pinkston told you that at Casa Loma Lodge? A. Yes. He didn’t say that Mr. Beeble was a man of financial responsibility then; he didn’t mention his name. He said this man that Mr. Landers made the deal with, from Amarillo, was a man of responsible means.”

As to the concealment of important facts concerning the true situation of the Apache Lodge, Mr. Agnew testified as follows:

******

“Q. Now, Mr. Agnew, up until this time, had anything been mentioned to you by either Mr. Landers or Mr. Pinkston concerning a Reconstruction Finance Corporation loan on this property? A. No, sir.

“Q. Or had anything been told you about Mr. Caldwell being the owner of this property? A. No, sir; I never had heard his name.

“Q. Had anything been mentioned to you concerning a contract between a Mr. Caldwell and a Mr. David? A. No.

“Q. Or a contract between Mr. David and Mrs. Melbourne? A. No, sir.

“Q. Was anything mentioned that the interest of the Davids and the Melbournes had been purchased by a woman by the name of Motto? A. No.

“Q. Nothing was mentioned at all? A. That is correct.

* * * * * *

“Q. If you had known there was an RFC loan, and these various contracts I have mentioned, in existence against this property, would you have gone into the transaction? A. I would not.”

It was understood by both parties that upon the conveyance of the Casa Loma Lodge to defendant Landers he would endorse the $23,000 Beeble note held by him to the said Agnew and also assign the collateral security thereto. What transpired at the time the deal was closed is better reflected by the testimony of Mr. and Mrs. Agnew.

Mr. Agnew testified: ******

“Q. Up until this time what was your understanding concerning the indebtedness of Mr. Beeble? Would it be endorsed to you, or what was going to be done with that indebtedness? A. I understood the note from Mr. Beeble to Mr. Landers would be endorsed over to me.

“Q. That was told you by Mr. Landers? A. Yes.

******

“Q. Later, a few days thereafter, did you go back to Mr. Krannawitter’s office? A. Yes, I believe it was the next day, or a couple of days afterward.

“Q. What happened at that time? A. Mr. Krannawitter had some additional papers which he said that in the rush of the previous day, or I believe it was the next day, in -the rush of the previous day, that he had forgotten to give to me to sign.

“Q. Did he explain -to you what those papers: were? A. Yes, he showed them to me.

' “Q. 'What were the papers? A. I believe they would be a non-recourse note; no recourse.

“Q. Did you understand what that was ? A. They were to the effect that Mr. Beeble’s note had been turned over to me, and that the deal had been completed on Casa Loma Lodge, and that in case of any default by Mr. Beeble, I would have no recourse to Mr. Landers. I believe that is it.

“Q. That was explained to you by Mr¿" Krannawitter? A. Yes.- They were all written .out when I got up there.”

Mrs. Agnew testified as follows:

iff # sfc sff Jfi

“Q. Was there any discussion about changing the note to a direct note from Mr. Beeble to Mr. Agnew, in your presence? A. Yes, there was. That was after Mr. Beeble arrived; that was when he took the note or promise to pay, out of hi's pocket and destroyed that.

“The Court: , (To Witness) Mr. Beeble did? A. Yes. Then there was another contract drawn up, straight from Mr. Beeble to my husband. The reason, Mr. Krannawitter said-'at that time, was to dispense with all the extra paper work,' and confusion.”

As to the reliance placed upon the representations made to him by the defendant Landers and his agent Pinkston, Mr. Agnew testified as follows:

******

“Q. When you signed that agreement, Mr. Agnew, in signing that agreement did you rely upon the representations that had been made to you by Mr. Landers and Mr. Pinkston? A. I certainly did.

“Q. As to the financial responsibility of Mr. Beeble? A, Yes.

“Q. As to the first mortgage at the First National Bank? A. Yes.

“Q. As to the income from the property? A. Yes, sir.

“Q. You relied upon all those things? A. Yes.

* * * * * *

“Q. If those representations had not been made as they were, would you have entered into the transaction at that time ? A. I certainly would not.”

At the conclusion of the trial the court found several findings of fact, among them the following:

“1. That on the 1st day of August, 1949, Plaintiffs were the owners of a certain property located in the Sandia Mountains in Bernalillo County, New Mexico, commonly known as Casa Loma Lodge in Cedar Crest, New Mexico, and more fully described in the Complaint.

“2. That the aforesaid real estate owned by Plaintiffs was offered to the Defendants, G. V. Landers and Marie W. Landers, at and for the sum of Twenty-five Thousand Five Hundred Dollars ($25,500.00).

“3. That it was represented by the Defendant, G. V. Landers, and his agent, Pinkston, to the Plaintiffs that one W. R.' Beeble was the purchaser of the property known as the Apache Lodge in Bernalillo County, New Mexico, and that G. V. Landers would pay to the Plaintiff the sum of $2,500.00' chas and would arrange for a transfer of certain indebtedness from said W. R. Beeble, represented to be owing to the said G. V. Landers to the Plaintiffs herein as collateral security for the payment of $23,000.00.

“4. That the Defendant Landers and the agent Pinkston, in the presence of Landers, made certain representations which were false representations as follows:

“a. That the income realized from the Apache- Lodge was $2,000.00 per month during the summer months, and $1,200.00 per month during the winter months.

“b. That W. R. Beeble was an experienced auto court operator, was a man of considerable means and was reliable.

“c. That an assignment of collateral security from Beeble to Plaintiff Agnew would be more effective security ‘for Agnew than would a second -mortgage.

“5. That the defendant Landers, and the agent Pinkston, fraudulently 'withheld from the Plaintiffs the fact that the tithe to the Apache Lodge was in a confused state, and that there were, at said time, a number of installment land contracts pyramided on it, and that if such facts had been made known to Plaintiffs, the sale of Casa Loma Lodge would not have been made.

“6. That the state of the title to Apache Lodge, at the time Plaintiffs took the collateral assignment from Beeble, was substantially as follows:

“A. Mortgage to Albuquerque National Bank in original amount of $25,-000.00; balance as of November 30, 1951, $11,457.85, payable out of contract payments as hereinafter described.

“B. On October 7, 1948, the original owners, E. J. Mankin and wife, sold to L. O. David and wife on real estate contract, and the Davids then assigned their interest as purchasers to Chattie Melbourne and S. Melbourne, with consent of owners.

“C. The original owners, Mankin, February 8, 1949, sold all their interest to B. L. Caldwell and Evelyn Caldwell, subject to purchasers equity.

“D. On April 26, 1949, the Melbournes sold their equity under separate real estate contract to Paul Truitt and wife, and thereafter the Melbournes, as owners under this contract, assigned all their interest to Sytha Motto and husband.

“E. At this point the interest of the Mankins, Davids and Melbournes had been extinguished; Caldwell being the record owner and Motto and Truitt having interests under real estate Contracts.

“F. On September 20, 1949, Truitt sold the property under separate real estate contracts to Beeble, which was the contract upon which Beeble executed the collateral assignment, Plaintiffs’ Exhibit D, to Plaintiffs.

“7. That in reliance upon such false representations the Plaintiff Agnew deeded the property above-described to G. V. Landers and his wife, on the 22nd day of September, 1949; that the said W. R. Beeble made and delivered to Samuel C. Agnew his certain promissory note in the sum of $23,000.00, and also executed a certain instrument entitled “Assignment of Contract as Collateral Security.”

“9. That the appraised valuation of the property at the time of trial was $26,000.00; that the Defendants had certain improvements and repairs to the property which enhanced the valuation of the premises in the sum of $5,000.00; that such improvements were in the main and substantially done after the filing of the complaipt, and the service of the same upon the Defendants herein.”

The Court concluded:

“1. There is such an inadequacy of consideration received by the Plaintiffs as to shock the conscience of the Court.

“2. That the false representations made to Plaintiffs by the Defendants and their agent as to material elements of said transaction, and the deliberate withholding of material facts by the Defendants and their agent, are such as to vitiate the conveyance by the Plaintiffs to the Defendants, of the premises described in the Complaint.”

The Court made the above findings of fact based on its belief in the testimony of the plaintiffs. We are bound by the trial court’s findings of fact when supported by substantial evidence. Taylor v. Sarracino, 44 N.M. 469, 104 P.2d 742.

In substance the trial court found four separate false representations which were made by defendants; they are: (1) As to monthly income from the Apache Lodge; (2) as to the financial status and business experience of W. R. Beeble; (3) as to the comparative worth as security of a collateral assignment of real estate contract and of a second mortgage; and (4) by fraudulently concealing the true state of the title which consisted of a multitude of pyramided executory sales contracts upon which a total indebtedness of $77,000 was due to several different creditors instead of a single mortgage approximating $77,000 held by a single creditor, First National Bank in Albuquerque. The trial court based its judgment upon all of these alleged false representations.

In our judgment, for reasons which we shall state briefly, the findings as to the first three of these representations will not suffice to sustain the judgment.

The first representations as to monthly income was clearly stated by defendants as constituting their understanding of the facts from the prior operators of the Apache Lodge. The testimony is explicit to the effect that defendants never operated the lodge nor saw the books. Plaintiffs had no right to accept these statements as representations of facts known to defendants when defendants clearly disclosed the source and reliability of the facts stated. Hartzell v. Jackson, 1937, 41 N.M. 700, 73 P.2d 820. The second representation as to the financial status and experience of Beeble is not actionable as fraud because it is unsupported by any substantial evidence. At no point in the record was there any evidence that Beeble was not financially strong and was not an experienced operator of tourist courts. With reference to the third misrepresentation concerning the comparative value as security of a second mortgage and of an assignment of a real estate contract, the authorities seem reasonably uniform to the effect that a misrepresentation of the law cannot constitute actionable fraud. This conclusion is sometimes based upon the theory that fraud cannot be predicated upon the expression of an opinion. We feel that this representation in the instant case is not actionable. 37 C.J.S., Fraud, § 55, Representations of Law, page 323.

Findings of fact 5 and 6 of the trial court cover the fourth misrepresentation upon which the trial court relied. It is comprised of a concealment by defendants of the true and confused state of the title of the Apache Lodge and the specific misrepresentation of an existing fact, namely, that the indebtedness of $77,000 against this property was represented by a mortgage in the amount held by the First National Bank. We quote again a question and answer made at trial in this connection. Mr. Agnew was the witness:

“Q. Even though you knew there was a mortgage held at the First National Bank for $77,000.00, why did you go into a transaction with that large a mortgage? A. I considered the First National Bank was a very reliable institution, and that I would have faith in the fact that if they had a $77,000.00 mortgage, that the property must have considerable value; and, also the fact that the bank might reduce those- $800.00 payments in case Mr. Beeble had any difficulty in fulfilling his obligations.”

In this fourth misrepresentation we find actionable fraud which will sustain the judgment of the trial court. It is true that there is no testimony as to the actual value of the Apache Lodge; however, aside from the question of whether or not $77,000 was more than the First National Bank would have loaned on this property, Mr. Agnew from this fact would be entitled to assume that the status of the security for a loan of that size would be carefully examined by the banking institution prior to the consummation of a loan; he was further entitled to assume that in the event of financial tightness in meeting the $800 monthly payments on this note and mortgage, he would have but one person or institution with which to negotiate for time or for a reduction in installments.

The testimony is clear that plaintiffs relied upon this misrepresented fact in consummating their trade. .The good faith of plaintiffs in their reliance is established by their letter of January 16,1950 addressed to the vice-president of the bank asking for information concerning the mortgage, which letter was answered on January 23, 1950 by the vice-president, as heretofore quoted in this opinion.

• It seems difficult to question the fact that plaintiffs suffered severe damages which flowed at least in part-from -this misrepresentation. The literal result of this transaction was that plaintiffs gave to Landers a $25,000 piece of property and received for it from Landers $2,500.

The greatest obstacle in the way of recovery for plaintiffs in this case is the contention made by defendants that plaintiffs’ delay in exercising their right of rescission deprives them of that right, both on the theory that they affirmed the transaction after knowledge , of the fraud and that, by their delay, it became impossible for them to place defendants in status quo.

It is true that the suit seeking rescission was not filed until July 20, 1950, even though they were apprised of the nonexistence of the first mortgage at the First National Bank by the vice-president’s letter of January 23, 1950. This Court, in Putney v. Schmidt, 1911, 16 N.M. 400, 120 P. 720, resolved similar questions in favor of the position taken by defendants. However, we do not deem that case controlling here for the'following reasons. By the time the Agnews received this information, they had left New Mexico and were concerned with affairs outside of this state; under the terms of the collateral assignment of the contract on the Apache Lodge, the plaintiffs had no right to take over the Apache property until there was a default on the $23,000 note from Beeble to Agnew. No such default occurred until March; the misrepresentations of fact made in this case by their very nature placed plaintiffs, in a position so complex and so difficult to evaluate that the time required by them to return to New Mexico, employ counsel and explore the possibilities of salvaging this transaction cannot be deemed an inordinate delay in the exercise of their right to rescission.

Nor can the defendant Landers protest that this delay has prevented plaintiffs from returning him to status quo. In Brown v. Norman, 65 Miss. 369, 4 So. 293, 297, the court said:

H* s|c j{< s|< Jfc

“Upon principle and authority we think it immaterial that the status quo cannot.be literally restored.- The defendant, by the grossest fraud, seduced complainant to exchange his farm for mere moonshine. What he professed to give was in fact of no value to himself or to any one else. * * * By his own act, therefore, a restoration of the status quo was made. impossible.”

The defendant Landers insisted, contrary to his original agreement, that he be not required to endorse the $23,000 note from Beeble to himself and that the collateral assignment run direct from Beeble to plaintiffs; in short, to the greatest possible extent he insulated himself and his own financial responsibility from jeopardy. Having done so, we cannot recognize his protest that he was not allowed to again become a principal in the transaction for the purchase of Apache Lodge. Further, the record reveals that the $23,000 promissory note from Beeble to Agnew still rests as a collection item in the hands of the First National Bank in Albuquerque. To this note, endorsed to defendants without recourse on plaintiffs,- the defendants are entitled for the purpose of returning them to their status quo insofar as this is possible.

On condition that plaintiffs procure and deliver to defendant Landers the promissory note for $23,000 properly endorsed by them without recourse to the said Landers, or in the alternative, on condition that they deliver said note so endorsed to the clerk of the district court for the use of Landers, the judgment of the trial court is affirmed. In the 'event of the failure of plaintiffs to comply with this condition, the judgment of the trial court is reversed with direction to the trial court to take such further action as is necessary to determine the fate and disposition made of this $23,000 note and make such- other - disposition of said case on the merits as is proper and not in conflict -with the -views expressed herein.

It is so ordered.

COMPTON and SEYMOUR, JJ., concur. SADLER, J., concurs in the result. McGIIEE, J., dissents.