Larson v. Thomas

215 N.W. 927, 51 S.D. 564, 57 A.L.R. 1246, 1927 S.D. LEXIS 260

• Court: South Dakota Supreme Court
• Decided: November 14, 1927
• Docket: File No. 5667
• Status: Published

Opinion

BU'RCH, J.

The purchaser’s right to rescind a contract for the purchase of a tract of land in Aurora county is the 'chief question on this appeal. 'Defendant was the owner of the land on and prior to August 17, 1920, and on that day sold- it at public auction for $23,680 to Larson, Townsend & Ricord. A written contract was then entered into betwe'en defendant and plaintiff, Larson. The other two did not sign the contract, although they had an interest in the transaction, and most of the subsequent dealings in reference thereto were with Townsend for the purchasers, and with defendant or his attorney for the vendor. ‘Since the authority to act for another is not questioned, we will not differentiate between the persons acting, but will refer to such acts as-the acts of the plaintiff or defendant without designating whether the act was in person or by agent. At the time the land was offered for sale the auctioneer announced the terms, but the contract did not in all respects conform to the announced terms. The parties seem to- have attempted to carry out the terms as announced, and, since no complaint is now made on that ground, we will treat the subsequent acts as per contract.

'Final settlement and transfer of title was to be made March 1, 1921. Prior to this plaintiff made two payments of $1,184 each, and defendant furnished plaintiff with an abstract of title. On this date plaintiff was to- pay $2,512, give notes secured by mortgage on the land for $5,000, and assume a mortgage of $13,800, making the total consideration $23,680, and -defendant was to -convey by warranty deed. This was not then do-ne, however, because plaintiff discovered the abstract showed the first mortgage to be $14,-800 instead of $13,800. Later, some time in May, plaintiff' paid, $1,512, and executed the notes and mortgage of $5,000, and the deed was deposited in escrow until the amount of the first mortgage could -be determined, when the balance of $i,ooa was to be paid, if the first mortgage was in fact for the amount claimed by defendant. The abstract was corrected, and the amount of the first mortgage was found to ¡be $13,800, but for some reason plaintiff delayed making the final $1,000 payment. Some time the fore pare of June defendant ordered a return of the deed to him. When plaintiff learned of the order to' return the 'deed, he wrote defendant on June 18th as follows:

“Now we fail to understand this, when all the payments were met and the mortgage and notes were signed and delivered to you at our office .and the only discepancy is the mortgage to' Matt Gales, which was later adjusted, leaving a balance of $1,000.00. due Mr. Thomas, which will be paid when our attorney passes upon the abstract. The abstract with Miller & Mitchell’s opinion was mailed to Mr. Thomas last week and we have the card acknowledging receipt thereof. These objections are vital and if Mr. Thomas is unable to- meet them, we will be compelled to' ask' the return for all payments made together with pay for improvements made and papers delivered. We are requesting that the deed be held in escrow by the State Bank of Mitchell until this is adjusted.”

Up to this time no attempt was made to rescind, but plaintiff had performed, except the payment of $1,000, and had promised to pay that on one of two occasions of an earlier date. For a long time there had been no effort to have the abstract examined by counsel. Plaintiff explains that he was misled into acceptance of the title without examination by representations of defendant or his counsel that the tifie was all right. Be that as it may, the abstract was finally examined by Miller & Mitchell, attorneys, and numerous objections were made, and the abstract returned to defendant as indicated in the above quoted letter. The defects in the title pointed out in Miller & Mitchell’s opinion from their examination of the abstract not having been cured or any attempt made by defendant to cure them, in November, 1921, plaintiff gave notice of rescission, and in June, 1922, brought this action to cancel the contract and recover payments made thereunder. The trial court rendered judgment in favor of plaintiff. From the judgment and an order overruling a motion for new trial defendant appeals.

Respondent seeks to sustain a rescission because it is claimed the warranty deed -does not convey a merchantable title. The written contract does not provide that an abstract shall. be furnished, but we do- not think this is material, as the right to rescind, if such right exists, depends upon the title offered, and not upon the abstract.

However, one may not always rescind a contract because the title contracted for cannot -be ¡conveyed. He may waive that right by delay or conduct inconsistent with the exercise of such right. In this case respondent did not have the abstract examined by an attorney promptly, -but, as he explains, he relied o-n the assurance of appellant that the title was all right, and made settlement on that basis without objection. Prior to- doing so- he pointed out one patent defect -discovered by him in the amount of the first mortgage. This defect was cured, and respondent then promised to complete the payments. This amounted to an agreement to accept the title without examination of the abstract. In Bates v. Smith, 48 S-. D. 602, 205 N. W. 661, we held that, where one agrees to accept title to land without examination of title, he thereby waives his right to rescind because of defects in the title, and is thereafter only entitled to have such -defects cured or damages for breach of warranty.

Respondent seems to have recognized this principle, for, after having the abstract examined, he returned it with counsel’s objections, and gave appellant opportunity to -cure the defects. For several months from June to November, no attempt to rescind was made, during which time appellant had an opportunity to -cure the defects, if he could, or to- compensate respondent, if there was any incurable defect. But during all this time, and for nearly a year until the -commencement of this action, appellant made no move to perfect the title or compensate respondent. On the contrary, he was -demanding the final $1,000, or a forfeiture of the contract. . By such conduct he elected to stand on the title offered and refused any further performance on his part. Would this conduct restore the right to rescind or furnish a new cause therefor? Assuming that the defects were vital and substantial, one ought not to be compelled to abide by a contract when a large part of the consideration therefor is denied him. A substantial failure of consideration is a ground for rescission. 24 Am. & Eng. Ency. (2d Ed.) 644; Kessler & Co. v. Parelius, 107 Minn. 224, 119 N. W. 1069, 131 Am. St. Rep. 459; Fossume et al v. Requa, 218 N. Y. 339, 113 N. E. 330. Appellant’s refusal to cure the defects or further perform his obligations under the contract was a breach thereof on his part, and, if substantial, furnished a new cause for which respondent could rescind.

We are now faced with the question, Are the defects pointed-out of such a character as to substantially lessen and reduce the-consideration promised respondent? It is not seriously contended that, in a sale of this character, the purchaser is not entitled to a merchantable title. Respondent contends that a title may no-t be merchantable, although good in the sense that it -cannot be successfully attacked, an-d can be successfully sustained in a court action. He says:

“A marketable title means not merely a title valid in fact, but a'title that must be such as to make it reasonably certain that it will not be -called in question in the future so as to- subject the purchaser to the hazard of litigation with reference thereto and must be free from reasonable -doubt as to any -question of fact or law necessary to sustain its validity.”

This is a definition given in 27 R. C. L. 490, and is amply supported by authority.

When and under -what circumstances and condition of the title a purchaser can refuse to accept a conveyance on the ground that the title is not marketable, although it be in fact good, is not so readily determined. It may -be said that, as a general rule, a purchaser is not bound to accept a conveyance, if the title is reasonably doubtful. Mere possibility or suspicion of defect is not sufficient, but, if there is a doubt or uncertainty sufficient to form the basis of litigation or color of an outstanding title which may prove substantial, the title cannot be said to- be marketable. Turner v. McDonald, 76 Cal. 177, 18 P. 262, 9 Am. St. Rep. 189; Townshend v. Goodfellow, 40 Minn. 312, 41 N. W. 1056, 3 L. R. A. 739, 12 Am. St. Rep. 736; Herman v. Somers, 158 Pa. 424, 27 A. 1050, 38 Am. St. Rep. 851; 27 R. C. L. 489, §§ 207, 208, and 209. Respondent lays stress on the opinion of counsel as a determining factor in ascertaining the marketability of a title. It has been held- that a title was not marketable where a loan company refused a loan on the property because its attorney would not certify the title. Miller v. Bronson, 26 R. I. 62, 58 A. 257. A title may be rejected upon a good faith opinion of counsel, if any of the questions are -doubtful questions of law. Walker v. Gilman, 127 Mich. 269, 86 N. W. 830. For other cases on the effect of opinion of counsel see Howe v. Coates, 97 Minn. 385, 107 N. W. 397, 4 L. R. A. (N. S.) 1170, 114 Am. St. Rep. 723; Moore v. Williams, 115 N. Y. 586, 22 N. E. 233, 5 L. R. A. 654, 12 Am. St. Rep. 844; Kane v. Rippey, 22 Or. 296, 23 P. 180; Harrass v. Edwards, 94 Wis. 459, 69 N. W. 69; McCroskey v. Ladd, 3 Cal. Unrep. 433, 28 P. 216. It is a common practice o-f purchasers of real estate to require an abstract which will be submitted to counsel for examination and opinion. If there are defects that will form the basis for objection, an-di which will be objected to by most, if not all, reputable and competent attorneys to which the abstract may be submitted, then the purchaser o-ught not to be compelled to accept such title, because he may not be able to procure a purchaser until such defects are cured. The defects impair the marketability, though they may not in fact impair the title.

In this case there is the opinion of respondefit’s counsel that the title is not marketable without certain corrections, which he points out; then there is the judgment of the trial court holding the title not marketable, and respondent contends the opinion of appellant’s counsel to the same effect is evidenced 'by his efforts to establish the title in the trial of the case by extraenous evidence showing adverse possession. Appellant did offer evidence of continuous, uninterrupted possession under a sheriff’s deed,, and many years’ payment of taxes, and argues in his brief that the title is good, giving as one of his reasons the possession and payment of taxes. The' extraenous evidence to aid- the title cannot be considered. It may be that the facts are such that appellant would have no difficulty in quieting his title, but he cannot do so in this action for want of proper parties', if for no other reason. No possible adverse claimant is a party here.

To test the bona fides of counsel’s objection, we turn to the claimed defects in the record. There are eight objections made. The first refers to the first mortgage, which respondent assumed, the second to 1920 taxes, which have been paid- by appellant. Neither of these are now material. The third relates to a defect in the manner of sale in a mortgage foreclosure made in 1900. A sheriff’s deed issued in 1901, and upon this deed the subsequent title rests. The mortgage covered a ’half section, including the quarter section involved in this action. The entire half section was sold in one tract, and, under the holding of this court in Fienup v. Kleinman, 42 S. D. 43, 172 N. W. 804, it is claimed this manner of selling the property rendered the sale void. The later decisions of this court, Nelson v. Caspary, 46 S. D. 632, 195 N. W. 522, and Hagan v. Pratt, 46 S. D. 267, 192 N. W. 370, show this objection to be untenable. 'Respondent urges that his objection was made before the later decisions were announced, and for that reason the objection was good when made. But we do not; think the Fienup Case was applicable to a foreclosure where no objection was taken to the manner of sale within the period of redemption, and after the great lapse of time, more than 20 years, there could be no reasonable doubt as to- the validity of the sale ■on this ground. A further objection to this foreclosure was made on the ground that the mortgage was -one o-f two covering the same land recorded on tíre same day, hour, and minute, and, for that reason, it was impossible to- tell which had priority. If the one that was foreclosed was prior, the foi-eclosure would bar the other; if not, the- -other would not be barred by the foreclosure. Answering this objection, appellant argues that the foreclosed mortgage was first recorded because it appears on the record in ■book 2, p. 447, while the other appears in book, 2, p. 448, and further that, if the other mortgage was not barred by the foreclosure, it belonged to the grantee named in the sheriff’s deed when the deed issued, and was therefore merged, and was conveyed by a subsquent warranty deed to a later purchaser.

Respondent replies that because the foreclosed mortgage appears first on the record does not throw any light on the question of priority, because the mortgages were between the same parties, dated the same day, and were filed for record the same hour and minute, and that tire most that can be said is that they stand on the same footing, and neither has priority, and, if that is true, the foreclosure of one would not cut out the other; that such facts are notice to a subsequent purchaser to put him upon inquiry as to the actual priority of such mortgage, citing State Finance Co. v. Halstenson, 17 N. D. 145, 114 N. W. 724. He says there is nothing on the record that shows a merger; that merger depends upon the intent of the mortgagee, and the intention, when not expressed, is deducible from the circumstances; that the law presumes his intent to be in accord with his pecuniary interest, and for that reason the title must rest on presumptions or extrinsic evidence. He admits the mortgage is old and may be outlawed, but says no one taking a title can rely upon the statute of limitations without a showing that the statute has not been tolled or a decree of court quieting the title; that otherwise the title would rest on extrinsic evidence. The suggestions he makes present questions that a careful lawyer could not answer off hand and feel sure that his answer would be sustained in court, in the event of an adverse claimant armed with extrinsic evidence contradicting the presumptions necessary to support the title and the inferences that one might feel could be drawn from the record title shown. For this reason it cannot be said the title is free from reasonable doubt and therefore merchantable. We have but little doubt it could have been made merchantable by an action to quiet title, where extrinsic evidence could have been produced and the fact of adverse possession and long-continued payment of taxes could have been established. But we cannot prejudge such a case, nor know until the evidence is in what facts may appear. The hazard of such litigation must be -borne by appellant. Or, if the defects could be cured in some other manner, the burden of the necessary steps was upon appellant. .So long as appellant recognized the duty, and was making a sincere effort to perfect the title, respondent could not rescind, ¡but, when appellant refused to- proceed further with his contract, unless the title offered was a substantial fulfillment of the contract on appellant’s part, respondent might then rescind for such breach. Appellant contends that respondent did not in fact rescind the contract, because he did not offer to-restore possession and account for the rents and profits. It appears from the evidence that respondent went into possession by tenant; that, after the commencement of this action, neither being willing to further hold possession, :by mutual agreement the tenant was continued in possession, and it is asserted by respondent that no rents for any of the time have been collected. On the trial respondent offered to* turn over the rent. If the' rescission was incomplete when notice was given, this action is for rescission, and the court may allow it. Appellant has not offered in this action to perfect the title, but, on the contrary, has asked the cancellation of the contract for failure of respondent to pay the balance due. If the court denies a rescission, respondent must take the title as it is, for appellant offers no more, and denies any liability for failure to comply with the contract on his part. Under such circumstances he ought not to complain, if a rescission is allowed.

But in allowing a rescission respondent should account for the value of the possession of the premises while held by him, although his tenant may not 'have paid the rent. In fixing the amount of respondent’s damages'in the judgment, no account appears to have been taken of the value of the use and occupation of the premises while in his possession, but the judgment appears to be for the full amount of the payments and improvements made by respondent. To this extent the judgment is erroneous'and the judgment and order appealed from are therefore reversed and: the cause remanded, with directions to the trial court to ascertain the value of the use and occupation of the premises during the period they were in possession of the respondent, and to deduct the amount so ascertained with proper interest from the recovery as allowed to the respondent in the judgment appealed from, and-enter judgment accordingly and in harmony with this opinion. No costs will be taxed on this appeal.

CAMPBELL, P. J., and GATES, POLLEY, and SHERWOOD*, JJ., concur.