Larson v. Thomas

• Decision Date: 14 November 1927
• Docket Number: 5667
• Citation: 215 N.W. 927,51 S.D. 564
• Parties: L. G. LARSON, Plaintiff and respondent, v. G. J. THOMAS, Defendant and appellant.
• Court: South Dakota Supreme Court

51 S.D. 564

215 N.W. 927

L. G. LARSON, Plaintiff and respondent,

v.

G. J. THOMAS, Defendant and appellant.South Dakota Supreme Court Appeal from Circuit Court, Aurora County, SD Hon. Frank B. Smith, Judge FileNo. 5667—Reversed Muller & Conway, Sioux Falls, SD Attorneys for Appellant.Lauritz Miller, Mitchell, SD Attorneys for Respondent.Opinion filed November 14, 1927

BURCH, 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 clay sold it at public auction for $23,680 to Larson, Townsend & Ricord.A written contract was then entered into between 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 I, 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 done, however, because plaintiff discovered the abstract showed the first mortgage to be $14,800 instead of $1,800.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 $1,000 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 discrepancy 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 or 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 title 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 trialdefendant 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 caserespondent did not have the abstract examined by an attorney promptly, but, as he explains, he relied on 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 tie title without examination of the abstract.In Bates v. Smith, 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, 131 AmStRep 459;Fossume et al v. Requa, 218 NY 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 not be merchantable, although good in the sense that it cannot be successfully attacked, and 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...