Oscar Hauben v. W. Clayton Harmon, Robert K. Harmon, Jr. And Cypress Gardens Realty and Insurance, Inc.

605 F.2d 920, 28 Fed. R. Serv. 2d 600, 1979 U.S. App. LEXIS 10729

• Court: Court of Appeals for the Fifth Circuit
• Decided: November 2, 1979
• Docket: 77-1769
• Status: Published

Opinions

SIMPSON, Circuit Judge:

This diversity action was brought in the district court by appellant buyer, Oscar Hauben, against the sellers, W. Clayton Harmon and Robert K. Harmon, and the broker, Cypress Gardens Realty & Insurance, Inc., seeking rescission of a land sale contract on the grounds of fraud, misrepresentation and concealment. Title 28, U.S.C. Section 1332. The sellers counterclaimed seeking damages for breach of contract. The broker counterclaimed for its commission.

The trial court initially entered judgment for the sellers on their counterclaim in the amount of $83,400.00 and ordered that the broker’s commission be paid fronuthe, judgment. The parties filed various post-trial motions. All were denied except the sellers’ Rule 59(e) motion that the broker’s commission be paid in addition to and not out of the $83,400.00 judgment in favor of sellers. F.R.Civ.P. 59(e). The court postponed hearing on this motion until a subsequent date. Later the parties entered into a settlement agreement in which the broker agreed to accept $10,000.00 in full payment of its claim for commission. After hearing argument of counsel on the seller’s Rule 59(e) motion, the court approved the settlement of the broker’s claim, dismissed the broker from further proceedings, and granted sellers’ motion by increasing the gross judgment in favor of the sellers by $10,000.00, the amount of the agreed settlement of the broker’s claim. The buyer appeals from the judgment contending (1) that the district court erred in holding the buyer was not entitled to rescind, and (2) that the district court lacked jurisdiction to hear the sellers’ Rule 59(e) motion. We find these contentions without merit and affirm.

On May 18, 1973 the buyer entered into a land sale contract with the sellers to purchase 834 acres of land in Lake County, Florida, bounded on the south by the Withlacoochee River, for $717,240.00, a price of $860.00 per acre. The contract provided that the purchase price included all oil and mineral rights. The land is partially located within the Southwest Florida Water Management District (the District) and the Green Swamp Flood Detention Area and is consequently subject to condemnation by the State of Florida for the flood control project. The Green Swamp Flood Detention Area is part of a flood control project the purpose of which is the avoidance of flood conditions by impounding water for a period to allow rivers feeding out of the area time to complete local drainage. The central controversy in this appeal is whether the sellers’ non-disclosure of the State’s possible condemnation interest in the property gave the buyer the right to rescind the contract.

The sellers did not disclose that a substantial portion of the property lies within the Green Swamp Flood Detention Area. The district court held that this information was not material because the state had periodically and intermittently acquired land in the area for some 35 years, and it was pure speculation whether this or any other piece of property might ever be condemned. Although at trial the buyer argued that the sellers had misrepresented that the land was high and dry and suitable for residential development, the evidence did not establish that the land was not as represented.

About two weeks before entering into the sales agreement the sellers visited the District office on May 3,1973 and discussed the District’s intentions concerning the property. This visit was followed by a telephone call from one of the sellers to the District. The sellers did not disclose any of the information received as a result of the visit or telephone call to either the buyer or the broker. However, the trial court found the failure to disclose this information was not a concealment of a material fact justifying rescission because the sellers did not receive any definite information as a result of the visit or the phone call.

Before executing the contract the buyer physically inspected the property on two occasions. Neither the sellers nor the broker attempted to forestall an independent inquiry into the character and circumstances surrounding the property. In fact, the broker encouraged the-buyer to do so by giving him the telephone number of the local zoning board and suggesting that he call it. The buyer is a capable and experienced businessman, unlikely to rely blindly on any of the sellers’ representations.

In the late summer of 1973 a title search revealed an outstanding Vi6th interest in the mineral rights not owned by the sellers. Because the sellers would not be able to convey all mineral rights, the buyer threatened to rescind. The sellers attempted to return his $20,000.00 deposit, but the buyer refused to accept it. On November 19, 1973, the buyer and the sellers executed an addenda to the May 3 contract which stated that the parties disputed whether the original contract required the sellers to deliver all the. mineral rights or only those mineral rights owned by the sellers. Under the addenda, the buyer agreed to forego his possible right to rescind in return for the sellers’ agreement to institute a partition action to acquire the outstanding mineral rights. The partition action was commenced, and by August of 1974 the sellers reached an agreement with the owners of the outstanding mineral rights to purchase that interest. By the terms of the addenda the original contract otherwise remained “in full force and effect, unaltered and unmodified.”

Between the execution of the original contract and execution of the addenda, the sellers had several communications with the District concerning the District’s plans with regard to the property. In one letter the District indicated that it might need 70-75% of the property, that after obtaining appraisals it would be in a position to negotiate for the property, and that if negotiations failed it might institute condemnation proceedings. The district court found that the failure to disclose information learned from communications with the District after execution of the original contract but before execution of the addenda was not a non-disclosure justifying rescission of the contract because the sellers did not learn that the District definitely planned to condemn the property until two months after execution of the addenda. Until then, said the court, it was pure speculation whether the property would be condemned. A condemnation suit was filed by the District on June 24,1974 and was voluntarily dismissed by the District in September of 1975.

Upon learning of the prospective condemnation the buyer sued for rescission of the contract. The sellers and the broker counterclaimed. The district court found that the buyer was not entitled to rescind. Judgment was entered in favor of the sellers and the broker on their respective counterclaims. It is from this judgment that the buyer appeals.

Generally, in order to establish a cause of action in fraud under Florida law, a plaintiff must establish that: (a) the defendant knowingly made a false statement concerning a material fact; (b) the defendant intended that the plaintiff rely on the statement; (c) the plaintiff relied upon the statement; and (d) the plaintiff was damaged as a result of that reliance. See, for example, Ball v. Ball, 160 Fla. 601, 609, 36 So.2d 172, 177 (1948); Sutton v. Gulf Life Ins. Co., 138 Fla. 692, 693, 189 So. 828, 829 (1939); Nixon v. Temple Terrace Estates, Inc., 97 Fla. 392, 397, 121 So. 475, 477 (1929); 14 FlaJur. Fraud and Deceit § 9. Under certain circumstances, an innocent misrepresentation of a material fact, relied on to another party’s detriment, is grounds for rescission of a contract. Robson Link & Co. v. Leedy Wheeler & Co., 154 Fla. 596, 616, 18 So.2d 523, 533 (1944); Langley v. Irons Land & Development Co., 94 Fla. 1010, 1017, 114 So. 769, 771 (1927). This exception to the requirement that knowledge and intent to defraud be proven appears to rest on two logical grounds. First, even an innocent maker of a false statement should not be allowed to profit at the expense of an innocent party. Second, a deceived party should not be bound to a contract simply because he cannot prove the representor knew the statements were false when made. Robson Link & Co., supra, 18 So.2d at 533.

The facts of the instant case differ from the typical fraud or misrepresentation cause of action because here there were no affirmative misrepresentations. Instead the buyer claims the sellers failed to disclose material facts concerning possible future condemnation. A non-disclosure of a material fact as well as an overt misrepresentation can constitute fraud justifying rescission of a contract. E. g. Robson Link & Co., supra, 18 So.2d at 532; Hirschman v. Hodges, O’Hara & Russell Co., 59 Fla. 517, 527, 51 So. 550, 554 (1910); 14 Fla.Jur. Fraud and Deceit § 27. However the Supreme Court of Florida has stated that although nondisclosure of a material fact may be grounds for relief,

where the facts lie equally open to the vendor and vendee with equal opportunity of examination, and the vendee undertakes to examine for himself, without relying upon the vendor’s statement, it is no evidence of fraud that the vendor knew facts not known to the vendee and does not make them known to him.

Stephens v. Orman, 10 Fla. 9, 86-87 (1862); see also Hirschman v. Hodges, O’Hara & Russell Co., supra, 51 So. at 554; Robson Link & Co., supra, 18 So.2d at 531. The record in this case indicates that the buyer and sellers apparently had equivalent access to the information concerning the property, that the buyer did not rely on the sellers’ representations, and that the buyer did conduct an investigation of his own.

Additionally, an affirmative duty to disclose exists in Florida only if there is a fiduciary relationship between the parties or the facts are solely within the knowledge of the representor or some trick has been employed to prevent an independent investigation by the representee. Ramel v. Chasebrook Construction Co., Inc., 135 So.2d 876, 882 (Fla.App.1962). Fraud is not presumed; the burden of proof lies on the party claiming to have been defrauded. Barrett v. Quesnel, 90 So.2d 706 (Fla.1956). With these basic principles of Florida law in mind, we proceed to the buyer’s assignments of error.

The sellers did not disclose that a substantial portion of the property sold lies within the Green Swamp Flood Detention Area. While that name may sound foreboding, the evidence at trial did not show that the property within this area is flooded or otherwise unsuitable for residential, commercial or other normal uses. Property within the area is possibly subject to condemnation by the state. However, the Green Swamp Flood Detention Area covers more than fifty square miles. The state’s condemnation activities in the area have been continuing off and on for more than three decades. It is thus a matter of speculation whether any one piece of property within this area may ever be condemned. A fact is material if but for the alleged non-disclosure or misrepresentation the complaining party would not have entered into the transaction. E. g., Morris v. Ingraffia, 154 Fla. 432, 437, 18 So.2d 1, 3 (1944); Great American Insurance Co. v. Suarez, 92 Fla. 24, 29-30, 109 So. 299, 301 (1926). Furthermore the issue of materiality of an alleged non-disclosure or misrepresentation appears to be a question of fact under Florida law.¹ Considering the tenuous and speculative effect of part of the land sold being partially within the Green Swamp Flood Detention Area, we agree with the district court’s determination that this information was not material under Florida law.

The buyer also claims that the information received by the sellers as a result of the May 3, 1973 meeting and the May 18, 1973 telephone conversation with the District was more specific information which was material and should have been disclosed. The district court found that the sellers received no definitive information as a result of the meeting and the telephone conversation and that therefore the information was not material. Under Florida law, mere statements of possibilities do not generally constitute false statements of material facts. Sutton, supra, 189 So. at 829; Greenberg v. Berger, 46 So.2d 609, 610; (Fla.1950), Farnham v. Blount, 152 Fla. 208, 218, 11 So.2d 785, 790 (1942), 14 Fla.Jur. Fraud and Deceit § 13. Similarly, a failure to disclose mere possibilities cannot be a failure to disclose material facts.

The buyer argues that even if the sellers had no definitive information prior to the execution of the original contract, they had such information, which should have been disclosed, prior to entering the November 18, 1973 addenda to the contract.² However the district court found that it was not until two months after execution of the addenda that the sellers learned the District actually planned to acquire the property through condemnation and that before that time the possibility of condemnation was speculative. In view of this factual determination, the district court was amply justified in holding that this information was not material because of its speculative nature.

In his efforts to establish the non-disclosed information as material, the buyer cites several Florida opinions which hold that the pendency of condemnation proceedings at the time of execution of a contract constitutes a defect in title and is grounds for rescission of the contract. Walton Land & Timber Co. v. Long, 135 Fla. 843, 185 So. 839 (1939); Westerlind v. Dehon, 326 So.2d 24 (Fla.App.1976). As the district judge explained in his opinion, these cases do not apply to the facts of the instant case because in each of them the condemnation action was filed before the execution of the contract.

After finding that there had been no misrepresentation or non-disclosure of material facts, the district court correctly applied the doctrine of equitable conversion as taught by the case of Arko Enterprises, Inc. v. Wood, 185 So.2d 734 (Fla.App.1966). Under the doctrine of equitable conversion a purchaser of realty becomes seized of beneficial title to the property upon execution of the contract of sale. Id. at 736. The vendor carries the burden of loss before execution of the contract and the vendee carries the burden of loss after execution of the contract. Arko applied the doctrine of equitable conversion and held that condemnation of real property after execution of the contract and before conveyance of legal title was not a ground for rescission and that the buyer was entitled to the condemnation award in place of the land. Id. at 740. Although events short of actual condemnation may, in the proper circumstances, be grounds for rescission, the instant record does not establish such events.

The buyer also asserts that the district court improperly considered the subsequent dismissal of the condemnation suit. This assertion is without merit. It is clear from the district court opinion that the district judge mentioned the dismissal in passing without considering it in his decision.

Finally, the buyer argues the district court lacked jurisdiction to grant the sellers’ Rule 59(e) motion to assess the broker’s commission against the buyer rather than requiring it to be paid from the judgment in favor of the sellers. Originally the district court entered judgment for the sellers for $83,400.00 and directed that the $50,040.00 broker’s commission be paid from that amount. All parties thereafter filed various timely post-trial motions. All motions were denied except the sellers’ Rule 59(e) motion. The district judge directed:

However, with respect to the allegations in Paragraph 1 of the Harmon motion filed October 6, 1976, counsel will be heard at Tampa on a motion to alter or amend that portion of the Opinion and Judgment under Rule 59(e), providing such a motion is filed within 10 days of the notice of this Order by the Clerk, as I will be sitting ¿gain at Tampa from February 14, 1977, through March 4, 1977.

App. at 189.

On the court’s direction, the sellers refiled the motion which was subsequently granted. The buyer argues the district court lacked jurisdiction to hear the motion because more than ten days had elapsed from the time of entry of the judgment until the sellers filed the motion for the second time. The Federal Rules of Civil Procedure require a motion to alter or amend a judgment to be served not later than ten days after entry of judgment. F.R.Civ.P. 59(e). The ten day limit cannot be enlarged by the court. F.R.Civ.P. 6(b). The district court did not offend these rules as the sellers initially filed the motion within, the ten day period. The district court merely delayed ruling on the timely motion until it could hear argument of counsel.

The judgment appealed from was correct. It is

AFFIRMED.

1 . Biscayne Blvd. Properties, Inc. v. Graham, 65 So.2d 858, 859 (Fla. 1953); 14 Fla.Jur. Fraud and Deceit § 88. Biscayne Blvd. Properties, Inc., the only Florida case which approached this question, does not clearly state that materiality is a question of fact, but it is cited by Florida Jurisprudence as supporting such a proposition. The Florida test for materiality in this type case is whether, but for the non-disclosure or misrepresentation, the complaining party would not have entered into the transaction. Morris v. Ingraffia, supra, 18 So.2d at 3; Great American Insurance Co. v. Suarez, supra, 109 So. at 301. Considering the Florida test of materiality, jt is evident that it is the function ( of the trier of fact to weigh the evidence and determine whether the party would have en-j tered the transaction even if the information) had been disclosed.

2 . Appellant buyer summarily concludes, without supporting authority, that the addenda to the contract constituted a new contract which required full disclosure of all material fact concerning the original contract, even those facts having little, if anything, to do with the addenda transaction. Certainly a modification to an existing contract constitutes a new contract. 7 Fla.Jur. Contracts § 169. Although a contract may be modified, the general rule is that the original contract stays in force except as modified. 17 Am.Jur.2d Contracts § 459. No Florida case has addressed the issue of whether a party is required to disclose events occurring after execution of an original contract which have little if anything to do with subsequent modification to the contract. Since we have determined that the information sellers gained after execution of the original contract was not material, we need not decide this issue.