Doerr v. Henry

806 P.2d 669, 1990 WL 265177

• Court: Court of Civil Appeals of Oklahoma
• Decided: November 29, 1990
• Docket: 70970
• Status: Published

Opinions

BRIGHTMIRE, Chief Judge.

This is a real estate mortgage foreclosure action in which the defending mortgagors filed a counterclaim for cancellation of the mortgage, rescission of the real estate sales contract, and damages for breach of contract and fraud.

The trial court granted the plaintiffs a decree of foreclosure and denied the defendants relief on their counterclaim.

We reverse and remand.

I

The operative facts are somewhat involved and center on the plaintiff sellers’ misrepresentation of the quantum of land they owned and sold, on which the defendant purchasers relied in buying the property.

The plaintiffs, Betty and Clarence Doerr, owned some land fronting on Lake Raymond Gary in Choctaw County, Oklahoma, which was part of the Pauline Bailey Survey and Plat filed September 5, 1957. On the Bailey plat the property the Doerrs actually owned is identified as Lots 31, 32 and 33, and part of Lot 30. In 1979 Mr. Doerr hired a registered surveyor named Lambert to prepare plats reflecting the results of his survey. According to Lambert, Mr. Doerr told him where to put the stakes and the survey was made between the designated points within the NW/4 of Section 36, Township 6 South, Range 19 East of the I.B.M. in Choctaw County. The surveyor prepared two survey plats which were referred to as Plat 1 and Plat 2. Each plat extends the boundaries of the Doerrs’ property far beyond the lots shown on the Bailey plat.¹

Prior to 1984, the defendants, Joe and Grace Henry, were living in Fort Worth, Texas, where Mr. Henry operated a mail order business along with an additional regular job. He retired from his job and along with his wife wanted to move from Fort Worth. The Henrys heard about the Doerrs’ place on Lake Raymond Gary being for sale so they visited Hugo, Oklahoma, for the purpose of looking at it.

The Doerrs gave the Henrys copies of the two survey plats prepared by surveyor Lambert and took the Henrys over the property shown on the plats.

Based on the Doerrs’ representation as to the boundaries of their land, as shown in the survey plats, the Henrys agreed to buy the two plots of land for $85,000.

On June 30, 1984, the Henrys paid $8,500 and the parties executed a sales agreement to which was attached the two Lambert plats of the land being sold. The agreement reads as follows:

“C.E. and Betty J. Doerr agree to sell to Joe V. and Grace Henry two (2) plots of land on Lake Raymond Gary (as shown on attached surveys) for the sum of $85,-000.00 payable as follows:

$8,500.00 binder on June 30, 1984 $31,500.00 on or before October 19, 1984

$45,000.00 (final payment) on or before January 31, 1985.

Seller agrees to furnish survey stakes at all corners of both plots.

Seller agrees to install chimney cap on chimney, repair or replace downstairs bedroom door, switch plate on upstairs hallway light switch.

Seller agrees to furnish abstract and marketable title on plot 1 where buildings are located, a warranty deed will be furnished on plot 2.

The refrigerator, washer, dryer, freezer, sattlite [sic ] receiver, drapes, light fixtures are included in sale.”

The Doerrs’ lawyer, Vester Songer, wrote the Henrys a letter dated September 14, 1984, concerning the two tracts in question. In it he referred to Tract 1 as Lot 33 but gave the legal description of Lambert Plat 1. He also referred to Tract 2 for the first time as Lots 31 and 32 in the Pauline Bailey Survey. He advised that the Doerrs had “abstracts of title to Tract One ... and I am having the abstracter extend [it] to make it current,” and added, “[a]s you know, there are no abstracts to Tract Two,” and to have one made would cost about $450. Mr. Songer said it was his “understanding that you [the Henrys] have familiarized yourself with the boundary of the property and are satisfied with the same. Lot 33 has a good title. I cannot express an opinion as to Tract Two for the reason that there are no abstracts available.” Finally the lawyer said the Henrys would get a “warranty deed” as to Tract 1 and “a Warranty Deed or a Limited Warranty Deed to Tract Two.” The abstract to Tract 1, incidentally, had been updated or extended to only November 1, 1979.

The closing took place at Mr. Songer’s office on October 19, 1984. The Henrys paid $31,500 more at which time the Doerrs executed two warranty deeds. One conveyed to the Henrys and warranted title to land called “Lot 33 in the Pauline Bailey Survey” but described by metes and bounds as Lambert Plat 1. The other deed conveyed and warranted title to “Lots 31 and 32 in the Pauline Bailey Survey to Lake Raymond Gary.” These lots were given no metes and bounds description. Following this the Henrys executed a mortgage to secure the $45,000 note given for the balance of the purchase price. The description in the mortgage coincided with those in the two deeds.

The lawyer did not tell the Henrys they were getting less land than they had contracted for. Nor did the lawyer ask the Henrys if they knew that Lots 31 and 32 were not the same property as shown on the Lambert Plat 2 attached to the contract. Moreover, he was silent upon hearing Mr. Doerr say, in response to a question by Mrs. Henry about what Lots 31 and 32 were, “[i]t is the same thing as Plat 2” and that he could give a better deed by calling it Lots 31 and 32.

After closing the sale, depositing checks and filing mortgages and deeds, Mr. Doerr and Mr. Henry met at the lot sites so Doerr could show Henry where the corner stakes were. It turned out, however, that Mr. Doerr could not find any stakes!

Mr. Henry then “had serious reservations.” He took the one abstract he had for Tract 1 to attorney John C. Muntz who examined it and on January 22, 1985, wrote an opinion rejecting the title. Among other things, lawyer Muntz reported a possible claim of ownership by Victor Roebuck and his wife of all the property sold by the Doerrs which is not platted as Lot 33 in the Pauline Bailey survey and required a quit claim deed on such property from the Roebucks as well as the Doerrs. Upon receiving this opinion, Mr. Henry wrote the Doerrs January 23, 1985, advising of the lawyer’s opinion and the need to obtain quit claim deeds to the property sold but not yet conveyed; that the Henrys also wanted subject property staked in accordance with Plats 1 and 2 and a warranty deed to Plat 2 as required by the contract of sale; and that if these matters were not taken care of by January 31, 1985 — the date when final payment was due — the Henrys would delay payment until such time as they were accomplished.

The required matters were not accomplished, so the January 31, 1985, payment was not made by the Henrys.

Seller Doerr admitted in a deposition that he based the sales contract on Plats 1 and 2; that he knew of Roebuck’s claim prior to making the contract with the Henrys; and that he felt obligated to furnish the Henrys with the acreage contracted for.

The Doerrs, on November 26, 1985, filed this lawsuit against the Henrys asking the court to grant them judgment for the unpaid $45,000 balance due under the contract and to foreclose their mortgage.

The Henrys answered pleading partial failure of consideration in that subject mortgage covered lands which were not owned by the plaintiff Doerrs and alleging that the Doerrs knowingly misrepresented the boundaries of the lots that were, both orally and graphically, with the intent to induce the Henrys to purchase said lands and that based thereon the defendants, to their detriment, agreed to purchase said lands. They also filed a counterclaim asking the court to cancel the note and mortgage, order the return of the $40,000 already paid to the Doerrs, and award them compensatory damages in the amount of $68,649.70 and punitive damages in the amount of $50,000 for the actual fraud perpetrated by the Doerrs on the Henrys by either knowingly or recklessly representing that they owned land they did not own to induce the Henrys to act on the misrepresentations and buy the property. The Henrys further pleaded that they relied on such misrepresentations and altered their position by signing a sales agreement and paying the Doerrs some $40,000.

The trial court denied the Henrys a jury trial on their fraud claim. A bench trial was held July 15, 1987. In addition to the" evidence mentioned above, the defendants adduced evidence in support of their claim for compensatory damages in the amount of $68,649.70. It was not until April 13,1988, that the trial judge rendered a decision granting the plaintiffs all the relief they requested and denying the defendants any relief on their counterclaim.

The Henrys appeal seeking reversal of the Doerrs’ foreclosure judgment and of the judgment denying the Henrys the relief sought in their counterclaim including damages resulting from the alleged deceit practiced by the Doerrs.

II

The Henrys contend that some of the trial court’s material findings of fact are clearly against the weight of the evidence and some of its legal conclusions reversibly erroneous. We agree.

The trial court rejected the defendants’ plea for rescission and damages based on fraud because of the difficulties involved in trying to locate the Pauline Bailey Survey lines and the fact that surveyor Lambert made a misstatement of the directional bearing on one boundary line of the platted drawings — a misdescription that was inconsistent with the drawings and which was later caught and corrected to coincide with the drawings. The undisputed evidence is, however, that the Doerrs made a positive material assertion about the boundaries of the land they were selling for which they had no reasonable basis. Furthermore they failed to disclose the fact that they did not know where their lot lines were.

Although the trial court expressed concern about the Henrys’ failure to hire a lawyer to help them before signing the sales contract, the fact remains that they were not legally required to do so but had a right to rely on the representations of the sellers as to the ownership, location, and boundaries of the property the Doerrs offered to sell. Miller v. Wissert, 38 Okl. 808, 134 P. 62 (1913). And having made a disclosure about the boundaries, the Doerrs had a duty not to conceal any material fact concerning their knowledge of the location of their property. Such concealment in the face of a duty to speak could be actual as well as constructive fraud. Faulkenberry v. Kansas City Southern Ry., 602 P.2d 203 (Okl.1979), cert. denied, 464 U.S. 850, 104 S.Ct. 159, 78 L.Ed.2d 146 (1983). As the court said in Faulkenberry, “the very same legal consequence” flows from constructive fraud as from actual fraud. Id. at 206.

The two plats attached to the sales contract, when compared to the Pauline Bailey Survey, reveal that the Doerrs were representing that they owned and were selling considerably more land than they actually owned.²

It is undisputed that Mr. Doerr picked the location for the stakes set by surveyor Lambert which were used to create Plats 1 and 2. Thus Mr. Doerr graphically represented to the Henrys the location and extent of the property he owned and was selling to the Henrys. Even assuming that Mr. Doerr inadvertently erred in setting the stakes, it still is no defense, as the trial court suggests, that the exact stake points of the Bailey plat were difficult to locate and that Mr. Doerr made an innocent mistake in locating them, because if true then Mr. Doerr, upon undertaking to describe the land boundaries to the Henrys, had a duty to make a full disclosure and tell them he was not sure where the lot lines were and that the Henrys would have to determine that for themselves. Under these circumstances, the conclusion set out by the trial court in its Journal Entry of Judgment — that “there is no showing that there was any intent on Mr. Doerr’s part to defraud the parties if he made a false allegation as to the description of the property and the staking of the corners” — was not justified.

At this point we review the essential elements of fraud. Actual fraud is defined in 15 O.S.1981 § 58 thus:

“Actual fraud, within the meaning of this chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract: 3

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true.

2. The positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believe it to be true.

3. The suppression of that which is true, by one having knowledge or belief of the fact.

4. A promise made without any intention of performing it; or,

5. Any other act fitted to deceive.” Constructive fraud is defined in 15 O.S.

1981 § 59 this way:

“Constructive fraud consists:

1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or,

2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.”

Hence, even without an intent to deceive, a party can be guilty of either actual fraud or constructive fraud under the foregoing statutory law if he induces another to enter into a contract by a misleading positive material assertion not warranted by his information, Faulkenberry v. Kansas City Southern Ry., 602 P.2d 203 (Okl.1979); Kelly v. Robertson, 61 Okl. 85, 160 P. 46 (1916), or where he is shown to have no reasonable grounds for believing it to be true, even though believed by the party making it, Garvin v. Harrell, 27 Okl. 373, 113 P. 186 (1911), and even if the utterer may not know the representation is false, Leasure v. Hughes, 72 Okl. 75, 178 P. 696 (1919). For the affirmation of what one does not know is, in morals and law, as unjust and wrongful as the affirmation of that known to be positively false. Howe v. Martin, 23 Okl. 561, 102 P. 128 (1909).

Under the facts of this case and the foregoing authority we hold that the trial court’s rejection of the defendants’ plea for cancellation of the sales contract and deeds, and for consequent damages, was clearly against the weight of the evidence and inequitable. There is no question about the misrepresentation of subject lot boundaries and if one concludes, as did the trial court, that the Doerrs did not realize they were misrepresenting or suppressing crucial facts, their conduct nevertheless falls within the purview of constructive fraud.⁴ 15 O.S.1981 § 59; Faulkenberry, 602 P.2d at 203. And having undertaken to give relief, equity may give complete relief whether legal or equitable in nature including the awarding of consequential damages, costs and an attorney fee necessary to adjust all rights and claims of the parties emanating from the transaction and for restoration to the status quo. Commercial Communications, Inc. v. State, 613 P.2d 473 (Okl.1980).

Considerable emphasis was placed by the trial court on what it considered to be plenty of time for the Henrys to investigate the boundary lines and uncover the misrepresentations before they signed the mortgage. A prospective buyer, however, has a right to rely on the veracity of the seller and his agent without investigation. The risk of harm in this state lies with the wrongdoer rather than his victim. Prescott v. Brown, 30 Okl. 428, 120 P. 991 (1911); Beavers v. Lamplighters Realty, Inc., 556 P.2d 1328 (Okl.App.1976). The court in Miller v. Wissert, 38 Okl. 808, 811, 134 P. 62, 64 (1913), dealt with a similar legal controversy and laid down the following no-nonsense principle:

“False representations of a vendor as to the quantity of a tract of land he offers for sale are not mere matters of opinion, but are material, and he cannot avoid their consequences merely because the vendee might have ascertained their falsity by a survey of the land or by reference to official plats and records.”

The trial judge also invoked what he accepted as an applicable metaphoric analogy, “that one can buy a ‘pig in a poke’,” and if you do and “you don’t look in the bag, you get the pig that is there and that’s all. Nothing additional. Neither does it give you an action in fraud if you decide later that you don’t like the pig.” Of course, the trial judge may be correct about southern lore, but he errs in applying the frontier allegory as the law of this state. It is another way of describing the long-since discredited common-law doctrine of “caveat emptor ” which our high tribunal rejected as early as 1911 in Prescott.

And speaking of pigs, the supreme court of this state that same year handed down Hobbs v. Smith, 27 Okl. 830, 115 P. 347 (1911), in which it upheld a judgment on a verdict awarding the buyers of some hogs in a poke, as it were, both compensatory and punitive damages for the fraud and deceit practiced by the seller who had represented that the swine were “in sound health and condition” and that he wanted to sell and deliver them to the plaintiffs at their stockyards in Dover, Oklahoma. Without looking in the “poke,” the plaintiffs bought 40 porkers sight unseen in reliance upon the representation of the defendant. Thereafter, the plaintiffs received and paid for 27 of the hogs. Not long after that the plaintiffs noticed the animals appeared to be sick. The plaintiffs had them checked and were informed that the defendant’s hogs had cholera. The evidence disclosed that many of them had died of cholera a few days before delivery, and that the defendant knew his hogs were diseased when he sold them to the plaintiffs. The plaintiffs were permitted to recover not only for the loss of the hogs they bought but for some of the plaintiffs’ healthy hogs that became infected and died, and for incidental damages arising from infecting other hogs of the plaintiffs, including their care, disposition of dead animals, and renovation of the plaintiffs’ premises. The defense, incidentally, was that (1) the hogs were not sick at delivery; and (2) the plaintiffs were experienced dealers in hogs and were able to examine and ascertain whether they were diseased or not before accepting them.

We hold that the clear weight of the evidence is that the defendants were victims of constructive fraud as a result of substantial misrepresentations made by the plaintiffs about the extent of the land they owned and were selling, that the defendants relied on such misrepresentations to their detriment and consequently they are entitled to equitable relief.

Ill

The judgment appealed is therefore reversed and the following judgment is rendered for the defendants: (1) The sales contract, the note, the mortgage, and the deeds are cancelled; (2) The plaintiffs’ petition for relief is denied; (3) The defendants are awarded judgment against the plaintiffs on their counterclaim for $63,649.70 with interest; (4) The defendants are granted a reasonable time to relocate and to vacate subject premises; and (5) The defendants are awarded the costs of this action which shall include a reasonable attorney fee the defendants have incurred to date, including work on this appeal, which shall be determined by the trial court on remand.

REIF and STUBBLEFIELD, JJ., concur.

APPENDIX A

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APPENDIX B

APPENDIX C

1 . To aid in understanding the land sold in relation to the land owned we attach a drawing as Appendix "A.”

2 . For clarification we include the following: Appendix "A" is a relevant portion of the Pauline Bailey Survey showing the locations, shapes and sizes of Lots 31, 32 and 33, and the comparative shapes and sizes of Tracts 1 and 2 attached to the sales contract; Appendix “B” shows the land described in Plats 1 and 2 attached to the sales contract which the Doerrs represented they owned and were selling to the Henrys; and Appendix “C” is a smaller scale orientational plat of the Pauline Bailey Survey.

3 . Emphasis added. Footnote omitted.

4 . The author believes the clear weight does require a finding of actual fraud. His colleagues, however, are of the opinion it does not, but that the evidence does require a finding that constructive fraud induced the sales agreement and that the defendants are entitled to complete equitable relief.