Jackson v. Alexander, 71-1621.

• Decision Date: 11 September 1972
• Docket Number: No. 71-1621.,71-1621.
• Parties: Gordon D. JACKSON, Plaintiff-Appellant, v. E. C. ALEXANDER and Exchange National Bank of Colorado Springs, a National Banking corporation, as Trustee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

465 F.2d 1389 (1972)

Gordon D. JACKSON, Plaintiff-Appellant, v. E. C. ALEXANDER and Exchange National Bank of Colorado Springs, a National Banking corporation, as Trustee, Defendants-Appellees.

No. 71-1621.

United States Court of Appeals, Tenth Circuit.

September 11, 1972.

J. Gregory Walta, Colorado Springs, Colo., for plaintiff-appellant.

Charles E. Painter and J. Hartley Murray, Colorado Springs, Colo. (Spurgeon, Aman & Hanes, and Murray, Baker & Wendelken, Colorado Springs, Colo, on the brief) for defendants-appellees.

Before PHILLIPS, SETH and McWILLIAMS, Circuit Judges.

ORIE L. PHILLIPS, Circuit Judge.

Jackson brought this action against Alexander and the Exchange National Bank of Colorado Springs,¹ a National Banking Corporation, as trustee, to recover for alleged fraud $6,375 as compensatory damages and $10,000 as punitive damages.

The Bank and Alexander filed a motion to dismiss on the grounds that the complaint did not state a claim on which relief could be granted, and did not state the circumstances constituting the alleged fraud with particularity, as required by Rule 9(b) of the Federal Rules of Civil Procedure.

The court held that the complaint did not state a claim on which relief could be granted, sustained the motion to dismiss, and entered judgment dismissing the action and awarding to Alexander and the Bank their costs.

Jackson has appealed.

We must liberally construe and accept as true the allegations of fact in the complaint and the inferences reasonably deductible therefrom, but we need not accept as true mere legal conclusions nor allegations of fact that are at variance with the express terms of an instrument attached to the complaint as an exhibit and made a part thereof.²

Moreover, in all averments of fraud, the circumstances constituting the fraud must be stated with particularity.³

This case had its genesis in an option to purchase the El Paso Gold Mine, located in Teller County, Colorado, and particularly described in an option agreement, a copy of which is marked "Exhibit A" and attached to the complaint, and is twice referred to in the complaint as "Exhibit A." The option agreement was entered into on August 1, 1967, between the Bank, as optionor, and Jackson, as optionee. They were referred to in the option as "seller" and "purchaser," respectively.

The pertinent provisions of the option were as follows:

It provided that in consideration of $5,000 paid by the purchaser to the seller, the latter granted to the purchaser "the exclusive right and power, at its (his) option" for and during the period commencing August 1, 1967, up to and including November 1, 1967, "to purchase" the El Paso Gold Mine, located in Teller County, Colorado, particularly described in the option agreement, together with all the mining equipment and machinery owned by the seller and used in the mining operations conducted on the property, also particularly described in the option agreement.

It further provided that in the event the purchaser exercised the option, he should pay as the purchase price $150,000, payable as follows: $5,000 to be paid at the time the option was executed, and "in the event of exercise of the Option, to be applied as earnest money on the purchase price; $25,000.00 to be paid at closing; and the balance of $120,000.00 to be payable by the execution of a Promissory Note secured by a First Deed of Trust and Chattel Mortgage on the property" described in the option and payable in installments as stipulated in the option.

It further provided:

"It is mutually agreed that, in the event PURCHASER shall fail to elect to exercise this option, the $5,000.00, which has been heretofore paid by PURCHASER shall be retained as liquidated damages by the SELLER, and that thereafter each party will be relieved of all further obligation hereto, * * *."

Paragraph 10 of the option reads:

"10. In the event PURCHASER elects to exercise this Option, it shall give notice by registered mail, postage prepaid, addressed to E. C. Alexander, Realtor, Woodland Park, Colorado, of its intent so to do. Said Notice shall be postmarked no later than November 1, 1967. PURCHASER shall have the further right, in the alternative, to give personal written notice to the said E. C. Alexander, and to secure a written receipt therefor, said Notice to be given on or before November 1, 1967. In the event of exercise of the Option by PURCHASER, closing of said transaction shall be on or before December 1, 1967. In the event of exercise of this Option, SELLER shall furnish to PURCHASER a complete Abstract of Title to all of the real property covered by this Contract on or before November 10, 1967. PURCHASER shall have a period of fifteen (15) days from the receipt of said Abstracts to examine the same, and, in the event, title is not merchantable and written notice of defects is given to SELLER within fifteen (15) days after the receipt of said Abstracts and shall not be capable of being rendered merchantable by SELLER within 120 days after such written notice, then this Contract shall be void and of no effect and each party hereto shall be released from all obligations hereunder and the earnest deposit of $5,000.00 shall be refunded to PURCHASER." (Italics ours.)

It will be observed that paragraph 10 makes it perfectly clear that the parties to the option contemplated that there might be defects in the Bank's title, which it could not remedy so as to make the title merchantable within 120 days after receipt of the written notice from Jackson of such defects, and that they expressly agreed that in such event the option would be "void and of no effect" and that each party should be "released from all obligations hereunder" and the earnest money deposit of $5,000 should be refunded to the purchaser.

It should be kept in mind that the $5,000 was originally paid as consideration for the option and was to be applied as earnest money on the purchase price, only in the event of the exercise of the option by Jackson; and since the option was never exercised, the $5,000 never became earnest money, and Jackson never became entitled to recover it back.

After alleging diversity jurisdiction in his complaint, Jackson further alleged:

"II.

"On January 26, 1966, the Bank, acting as trustee for an undisclosed principal, foreclosed on the El Paso Gold Mine in the Cripple Creek Mining District, Teller County, Colorado. (See Exhibit A for a legal description of the property.)

"III.

"On July 26, 1966, the redemption period passed under C.R.S.1963, 118-9-2(2) (1965 Perm.Supp.) and the Bank became eligible to receive a public trustee\'s deed.

"IV.

"On April 26, 1967, the period for issuance of a public trustee\'s deed expired under C.R.S.1963, 118-9-11(1), without such a deed having been issued to the Bank."

While it is not expressly alleged in the complaint, the implication necessarily follows from the above allegations that the Bank, as trustee, held a deed of trust on the property covered by the option to secure the indebtedness of a third party to the Bank, as trustee; that the maker of such deed of trust defaulted, and that the Bank...