Horton v. Reynolds

• Decision Date: 16 May 1933
• Docket Number: No. 9629.,9629.
• Citation: 65 F.2d 430
• Parties: HORTON et al. v. REYNOLDS et al.
• Court: U.S. Court of Appeals — Eighth Circuit

65 F.2d 430 (1933)

HORTON et al. v. REYNOLDS et al.^*

No. 9629.

Circuit Court of Appeals, Eighth Circuit.

May 16, 1933.

Charles M. Stilwill, of Sioux City, Iowa (Shull & Stilwill, of Sioux City, Iowa, on the brief), for appellants.

Robert B. Pike, of Sioux City, Iowa (Larned F. Brown, of Sioux City, Iowa, on the brief), for appellees.

Before STONE, GARDNER, and SANBORN, Circuit Judges.

SANBORN, Circuit Judge.

This is a suit for rescission of an exchange of real properties. The parties will be referred to as in the court below, the appellees as plaintiffs, the appellants as defendants.

The plaintiffs are husband and wife; the defendants are also husband and wife. In 1931, the plaintiff Beulah Reynolds was the owner of an apartment building and garage in Sioux City, Iowa. The defendant Anne Horton was the owner of two tracts of land, one of eighteen, the other of ninety-five, acres, in the southern or "valley" region of the state of Texas. The negotiations between the wives were conducted by their respective husbands, but no question of the husbands' authority is raised. At the time the exchange was made both the plaintiffs and the defendants were residents of Iowa.

Plaintiff John F. Reynolds, an architect of Sioux City, for some years prior to 1931 had been considering a removal to the valley region of Texas. In 1930 he answered a newspaper advertisement inserted by Horton offering to exchange the Texas holdings for land in Iowa. Later the defendants visited the Reynolds property. On that occasion Horton praised the fertility of the valley region and the condition and productivity of his wife's lands. The plaintiffs assert that he said that corn and cotton could be grown on the tracts in the summertime and all varieties of vegetables in the winter.

In October, 1930, Reynolds informed Horton that he was contemplating a trip to Texas with a view of investigating business conditions there. Horton wrote to Reynolds that a Mr. Allen in San Benito, Tex., looked after his property and would be glad to show the tracts to him if he desired. He added that it would be necessary for Reynolds to discount some of the statements made by the enthusiastic boosters of the valley region, and advised Reynolds to take sufficient time to make a thorough examination of the country.

Reynolds made the contemplated trip and spent one week in Texas. This was his first trip to that state. He was at Edinburgh for two days investigating building conditions there. He then went to San Benito. He spent three hours the first evening discussing the Horton tracts with Allen. Allen informed him that a Mexican tenant was on the ninety-five acre tract, and that he had the entire piece plowed and ready to plant. He stated that in one section carrots had already been planted, and that the rest would be devoted to tomatoes, beans, spinach, and new potatoes. He praised the fertility of the San Benito region and the richness of the Horton land and he gave estimates as to its value.

The next morning Allen and Reynolds looked at the eighteen-acre tract, and in the afternoon went to the ninety-five acre plot. The weather was cloudy and threatening; drizzles were frequent. Because of the mud, the automobile was left on the paved highway. The two men walked a mile to the site of the Horton land. Reynolds was able to observe its size and shape. Allen called Reynolds' attention to the character of the soil. The freshly plowed land presented a good appearance. It was so "wet and spongy and full of water" that they could not get over it. They stood at the edge of the tract and Allen pointed out where the carrots had been planted. The tenant was not seen. The land appeared flat and level and Reynolds did not observe the nature of the surface drainage. By walking on the unplowed ground at the side of the Horton tract, the men were able to get out to the middle line to examine the irrigation ditch. Allen explained its workings. They were about to go to the south end to investigate the drainage ditch and observe the carrots, but decided, in view of threatening weather, to return to town.

During the rest of the day Reynolds sat about the lobby of his hotel. Allen introduced him to a number of Texas people. A heavy rain set in late that evening which made further expeditions into the country practically impossible. Reynolds spent the next day investigating building conditions in the valley towns. The following morning he left San Benito.

On his return to Iowa, Reynolds gave to Horton what information he had gathered about the Texas land. He said at that time that the value Horton placed on the eighteen-acre tract was far too high, that its triangular shape was a disadvantage, the house of little value, and the citrus trees not well cared for. The ninety-five acre tract he thought required too large an investment. Horton, however, reduced his trading price considerably on the larger piece, and is again said to have asserted that the land was good vegetable land and well drained.

A second trip to Texas, which Reynolds planned to make in January, 1931, and again in July of that year, was made impossible because of his business engagements. On July 9, 1931, Reynolds and Horton made an agreement for the exchange of the respective properties. Deeds for the Sioux City lot and the ninety-five acre Texas tract were exchanged about August 1, 1931, each passing subject to its outstanding mortgage. The defendants also paid the plaintiffs about $300 in cash to compensate them for releasing the income producing Iowa property on August 1st, about a month in advance of the time the plaintiffs reached Texas.

Upon his arrival in Texas, Reynolds went to the Horton tract. He made a thorough investigation of the land, made inquiries of real estate authorities, consulted the county farm agent, and interviewed recent tenants. He claims he found that surface drainage from the land into the drainage ditch was impossible because the tract was separated from the ditch by the ridge created by dirt excavated from the ditch. No cut through this ridge had been made. He learned that the slope of the land was so slight as to allow for practically no surface drainage. He discovered a base soil of very hard compact clay about twelve inches in depth, and below that a plastic clay. He found that of the lands adjoining the Horton tract only on the north were vegetables of any kind grown. Vegetable farming was engaged in with comparative success only three-quarters of a mile to the west, a mile to the south and north, and to the east only after several miles. He found that when the soil was wet it became sticky and plastic.

Reynolds was unable to acquire any professional work in Texas, as building construction there was at a standstill. The present bill was filed September 19, 1931. It charged the defendants with making misrepresentations concerning the value of the Horton tract, its productivity and its drainage, and asserted that these representations were made for the purpose of defrauding the plaintiffs of their Iowa property, and that the plaintiffs relied upon these representations and made the exchange to their injury. A decree avoiding the transaction was prayed.

There was substantial testimony, mainly in the form of depositions by San Benito farmers, that there are lands in the valley region unsuitable for vegetable crops, that the Horton Land is of this type and consists of heavy "Harlingen Clay," that it is very level, that grass and some cotton may perhaps be produced upon it. The defendants introduced considerable testimony of the same kind to the general effect that the soil on the Horton tract was suitable for some kinds of vegetables; that, while up to that time it had been poorly worked, the land was productive, and that adequate drainage facilities could be easily provided.

The court found that misstatements had been made, and concluded that, while Horton did not intentionally misrepresent the lands, Allen must be regarded as his agent. He held the plaintiffs' reliance upon the assertions made not unreasonable, even though he had visited the Texas lands. A decree for the plaintiffs was entered.

We are confronted with the following questions: (1) Are the plaintiffs, by Reynolds' visit to the Texas land, precluded from asserting reliance upon misrepresentations made by the defendants and Allen? (2) Are the defendants responsible for Allen's representations concerning the land? (3) Has fraud been shown sufficient to entitle the plaintiffs to a rescission of the exchange of property?

It is obvious that an affirmative answer to the first question will make it unnecessary for us to consider the others.

A vendee is usually under no obligation to make an investigation in order to ascertain for himself the truth or falsity of the vendor's representations. 2 Pomeroy, Equity Jurisprudence (4th Ed. 1918) § 895. He may rely upon them and act accordingly. However, if in a given case the vendee did not rely upon the statements of the vendor, there can be no rescission of the transaction upon the ground of fraud.

It is said to be the general rule that, when misrepresentations of fact regarding property are made by a vendor, and the vendee relies upon them to his injury, the transaction may be avoided or rescinded. Morel v. Masalski, 333 Ill. 41, 164 N. E. 205, 207. Hence the problem is often stated to be one solely of reliance or nonreliance, regardless of any independent investigation undertaken by the vendee.

"Where he the vendee makes only a partial investigation, and relies in part upon the representations of the seller, and is deceived by such representations to his injury, he may maintain an action for such deceit." Kraus v. National Bank of Commerce of Mankato, 140 Minn. 108, 110, 167 N. W. 353, 354, and cases cited; Sioux Nat. Bank v. Norfolk State Bank (C. C. A. 8) 56 F. 139; Adkins v. Potter, 211 Cal. 512, 296 P. 285; Hetland v. Bilstad, 140 Iowa, 411, 118 N. W. 422; ...