Kracl v. Loseke

• Decision Date: 05 October 1990
• Docket Number: No. 88-532,88-532
• Citation: 236 Neb. 290,461 N.W.2d 67
• Court: Nebraska Supreme Court
• Parties: Timothy D. KRACL and Laurie A. Kracl, Husband and Wife, Appellees, v. Norman L. LOSEKE and Marie Loseke, Husband and Wife, Appellants.

Page 67

461 N.W.2d 67

236 Neb. 290

Timothy D. KRACL and Laurie A. Kracl, Husband and Wife, Appellees, v. Norman L. LOSEKE and Marie Loseke, Husband and Wife, Appellants.

No. 88-532.

Supreme Court of Nebraska.

Oct. 5, 1990.

Syllabus by the Court

1. Actions: Equity: Contracts: Rescission. An action to rescind a written instrument is an equity action.

2. Fraud: Equity: Proof: Evidence. In an equity case, fraud must be proven by clear and convincing evidence.

3. Fraud: Proof: Circumstantial Evidence. Fraud may be proved by circumstantial evidence.

4. Fraud: Contracts: Rescission: Real Estate. A seller's fraud provides a basis for a purchaser's right to rescind a contract for the sale of real estate.

5. Actions: Equity: Contracts: Conveyances: Rescission: Restitution. A plaintiff's restitution or tender of property is unnecessary before commencement of an action in equity to rescind a contract or conveyance.

6. Laches: Time. Laches does not result from the mere passage of time, but from the fact that during the lapse of time, circumstances changed such that to enforce the claim would work inequitably to the disadvantage or prejudice of another.

7. Contracts: Rescission: Ratification: Estoppel. A purchaser's conduct which constitutes acquiescence, ratification, or estoppel precludes rescission of a contract.

8. Contracts: Rescission: Parties. The purpose of rescission is to place the parties in a status quo, that is, return the parties to their position which existed before the rescinded contract; hence, rescission may be unavailable unless the parties can be placed substantially in the status quo.

9. Contracts: Rescission: Parties. The remedy of rescission involves more than cancellation of a contract, and includes a judicial effort to place the contractual parties in, as nearly as possible, substantially the same condition which existed when the contract was entered.

10. Contracts: Rescission: Equity: Real Estate. In equitable rescission of a real estate contract, a plaintiff purchaser is entitled to be returned to the status quo and recover payments on the contract rescinded less the fair rental value of the premises for the time that the plaintiff held possession of the premises under the contract.

11. Actions: Contracts: Rescission: Equity: Real Estate: Evidence. Before a seller, as a party to a contract rescinded in an equity action, may receive credit for fair rental value of the premises involved in the rescission action and thereby reduce the amount recoverable by the plaintiff purchaser as a result of the rescission, a court must be presented with relevant evidence which establishes the fair rental value of the premises.

Stephen C. Hansen, of Luckey, Sipple, Hansen, Emerson & Schumacher, Columbus, and Francis O'Brien, Schuyler, for appellants.

Larry J. Karel, of Karel & Seckman, Schuyler, for appellees.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ.

SHANAHAN, Justice.

In their petition filed on February 27, 1987, in the district court for Colfax County, Nebraska, Timothy D. and Laurie A. Kracl sought rescission of their written contract with Norman L. and Marie Loseke for the purchase of Losekes' house and "for such other and further relief as is just and equitable...." Kracls based their action on Losekes' concealment of termite damage in the residence sold to Kracls. The court entered judgment whereby the contract of sale was rescinded, Kracls recovered the payments made under the contract, and the premises were restored to Losekes, who appeal.

STANDARD OF REVIEW

An action to rescind a written instrument is an equity action. Fee v. Fee, 223 Neb. 128, 388 N.W.2d 122 (1986) (rescission of farm lease); Christopher v. Evans, 219 Neb. 51, 361 N.W.2d 193 (1985) (rescission of contract for sale of residence).

"In an appeal of an equity action, the Supreme Court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court, provided, where credible evidence is in conflict on a material issue of fact, the Supreme Court considers and may give weight to the fact that the trial judge heard and observed the witnesses Gottsch v. Bank of Stapleton, 235 Neb. 816, 818, 458 N.W.2d 443, 446-47 (1990); Frenzen v. Taylor, 232 Neb. 41, 439 N.W.2d 473 (1989); Neb.Rev.Stat. § 25-1925 (Reissue 1989) (appellate review in equity cases).

and accepted one version of the facts rather than another."

SALE OF LOSEKES' RESIDENCE

In December 1983, Losekes decided to sell their residence in Schuyler, Nebraska. Subsequently, in February 1984, Norman Loseke observed "tunnels on the south wall" of the residence's basement, but never actually saw termites in that area. Before putting their house on the market, Losekes had their basement ceiling sheetrocked to cover floor joists which supported the first floor of their home. Most of the Sheetrock work, except for an area near the basement's north wall, was performed by Leo McNally in March 1984. The ceiling near the north wall was already Sheetrocked when McNally commenced his work. Prior to McNally's work for Losekes, a contractor had built a small room in the Loseke basement. The basement room was approximately 4 by 6 feet, with a fully Sheetrocked ceiling which left no exposed wood. The walls for this basement addition also provided support for weakened joists covered by the Sheetrock at the north side of the basement. The additional support for the floor joists was necessary because, as later expressed by Norman Loseke at trial, "the floor joists were showing some deterioration, wood rot, termites...."

The Kracls first viewed the Loseke residence in early April 1984 and were informed by Losekes that "the sheetrocking had been put up to help sell the property, spruce it up a little bit." Also, Norman Loseke told Kracls that the house was in "good condition." There was no discussion concerning termites. Norman Loseke never mentioned the "tunnels," since, as he later maintained, he did not realize that termites had made the tunnels at the basement's south side. Norman Loseke characterized the basement room as a "canning room" and did not indicate that the room supplied support for the floor joists and basement ceiling.

After an additional visit to the Loseke house, Kracls decided to purchase the residence and met with the Losekes on April 14, 1984, to review a "Contract for Sale of Real Estate" which Losekes provided. Paragraphs 7 and 8 of the contract state:

7. The buyer has examined the above described premises, and relies upon their own inspection of said premises, and not upon any representations made by the seller or agent of the seller. No warranty is implied or expressed by the seller.

8. Termite inspection of the above described premises shall be the responsibility of the buyers with regard to the making of arrangements for the inspection and for the payment of the costs of the inspection. If termites are found on the premises as a result of the inspection prior to the final settlement, costs incurred in the treatment for termites shall be the responsibility of the seller.

Kracls and Losekes signed the contract on April 14 and scheduled a closing for July 1. Under the contract, Losekes were allowed to remain in possession of the house until February 1, 1985, since they were in the process of building a new home. After the July closing, Losekes remained in the house until January 3, 1985. For that period, Losekes paid Kracls rent in the amount of $1,000.

Although the Kracl-Loseke contract provided that Kracls were responsible for any termite inspection, Losekes took it upon themselves to obtain a termite inspection by Orkin Exterminating Company on October 17, 1984. That inspection revealed termites in the garage and beneath the basement steps of the house sold to Kracls. After Losekes paid for Orkin's treatment of the house, Norman Loseke told Kracls that Orkin "had found a trace [of termite activity] in the garage but there was nothing to worry about, they just went ahead and treated the house anyway."

KRACLS' POSSESSION OF THE RESIDENCE

On January 3, 1985, Kracls moved into the former Loseke residence and, in October On January 30, 1987, Kracls, by a letter from their lawyer, first informed Losekes about Kracls' discovery of termite damage in the house. Kracls filed their rescission action on February 27 and alleged that Losekes had concealed the existence of termites in the house sold to Kracls, who would not have purchased the house if the presence of termites had been known by Kracls.

replaced the old furnace in the north part of the basement, which required removing a section of the Sheetrock ceiling. When the Sheetrock was removed above the furnace, Kracls saw termite damage to the wooden floor joists. Kracls removed the remaining Sheetrock from the ceiling and found additional termite damage in the south and west ends of the basement. The bulk of the damage, however, was located in the north end of the basement. Orkin was summoned for the termite problem, treated the house in 1985, and applied an additional treatment in October 1986 to prevent further termite damage. Although the exact date is undisclosed, Kracls employed Joe Scheppers, a contractor, to inspect the house and evaluate the damage to their home. On January 12, 1987, Kracls received a written estimate from Scheppers Construction which stated that the cost to repair termite damage was $24,000. Kracls were also informed that it would cost an additional $1,000 for a moving company to raise the house so that Scheppers could replace the floor joists. To replace the floor joists, it would be necessary to remove and later replace the house's chimney at a cost of $1,700.

In their answer of March 27, 1987, Losekes denied any fraudulent concealment and, on January 25, 1988, 2 days before trial, filed an amended answer, which contained:

By way of further answer to Plaintiffs Petition Defen...