De Leon v. Aldrete

• Decision Date: 15 December 1965
• Docket Number: No. 14422,14422
• Citation: 398 S.W.2d 160
• Parties: Dario DE LEON et ux., Appellants, v. Cristobal P. ALDRETE, Appellee.
• Court: Texas Court of Appeals

Page 160

398 S.W.2d 160

Dario DE LEON et ux., Appellants, v. Cristobal P. ALDRETE, Appellee.

No. 14422.

Court of Civil Appeals of Texas, San Antonio.

Dec. 15, 1965.

Rehearing Denied Jan. 12, 1966.

Arturo C. Gonzalez, Del Rio, for appellants.

Montague & Thurmond, Del Rio, for appellee.

CADENA, Justice.

This case involves the rights of a defaulting purchaser under a contract for the sale of land. The parties will be referred to according to the designations they carried in the trial court.

On May 30, 1960, plaintiff, Cristobal P. Aldrete, and defendants, Dario De Leon and wife, Felicitas De Leon, entered into a written contract wherein plaintiff agreed to purchase and defendants agreed to sell a tract of land in the City of Del Rio. The purchase price was $1,500.00, payable in installments according to a schedule which called for the last payment to be made on April 1, 1961. Plaintiff did not make a single payment on time, and on April 1, 1961, when, according to the contract, the full price should have been paid, plaintiff had made payments totalling less than one-half of the purchase price. Thereafter, he made partial payments totalling $350.00. On July 6, 1961, the date of the last payment made by plaintiff, he had paid only $1,070.00, leaving a balance of $430.00 unpaid and overdue since April 1, 1961.

On February 1, 1962, defendants, by general warranty deed, conveyed the land in question to Guillermo Hernandez for a cash consideration of $1,300.00. The case has been tried on the theory that, since the contract between plaintiff and defendants was unrecorded and since plaintiff did not take possession of the land, Hernandez qualified as a bona fide purchaser and took the land free of any claims which plaintiff might assert under his contract of sale.

The trial court entered judgment for plaintiff in the sum of $1,512.60. This amount represented the total payments which plaintiff had made under the contract, $1,070.00, with interest thereon from February 21, 1962, to the date of judgment, and $250.00 which plaintiff had expended in payment of architect's fees incurred in preparation for the construction of a residence on the land. Defendants contend that there was no evidence to support the judgment. They further assert that, in any event, the trial court erred in allowing plaintiff to recover interest on the installments paid by him from February 21, 1962, to the date of judgment.

1. Plaintiff's Right to Restitution.

Defendants' theory is that, because of plaintiff's failure to make the payments called for in the contract, they had the right to, and did, 'rescind' the contract of sale and that, therefore, plaintiff had no right to recover the payments made by him prior to such 'rescission.' It is clear that defendants do not contemplate, by the use of the term 'rescission,' a nullification of the contract ab initio, with consequent rights of full restitution. What defendants assert here is the right of forfeiture.

A vendor, after breach of a contract for the sale of land by a purchaser, has the power to terminate the contract, thus ending the purchaser's interest in the land and freeing himself from the obligations imposed on him by such contract. McBride v. Banguss, 65 Tex. 174 (1885); Huddle v. Cleveland, Tex.Civ.App., 297 S.W.2d 737, wr. ref. The conveyance of the land by defendants to Hernandez was an effective exercise by them of their power to terminate the contract. McBride v. Banguss, supra; Whiteside v. Bell, 162 Tex. 411, 347 S.W.2d 568 (1961).

Where a vendor thus exercises the power of termination created in him by the purchaser's default, the question arises as to the right of the defaulting purchaser to obtain restitution of payments made by him prior to such termination. There are literally innumerable cases dealing with this problem and, as might be expected, the factual situations involved in these cases vary greatly. Attempts to state dogmatic rules without considering the factual distinctions reflected in the cases have resulted in much doctrinal confusion. Tucker v. Beam, 343 Ill.App. 290, 98 N.E.2d 871.

What it generally described as the majority rule in this country is that a defaulting purchaser cannot recovery any money paid by him under the contract to the vendor even though, as a result of the purchaser's breach, the vendor has abandoned all idea of further performance and retains the money, not for application on the purchase price, but as forfeited. Anno: 31 A.L.R.2d 8, 11-12 (1953).

The Texas decisions contain some broad general language which, if accepted at face value, would indicate that our courts are committed to the majority or 'forfeiture' rule. Tom v. Wollhoefer, 61 Tex. 277 (1884); Estes v. Browning, 11 Tex. 237 (1853); Magruder v. Poulton, 257 S.W. 533 (Tex.Com.App., 1924). However, it is apparent that the Texas courts have not adopted a dogmatic rule of forfeitute but, instead, have embraced the more salutary rule that the vendor must make restitution if the principles of euqity so require. The following language by our Supreme Court in Lipscomb v. Fuqua, 103 Tex. 585, 131 S.W. 1061, 1064, is pertinent:

'Whether the vendor who rescinds an executory contract for the sale of land shall return the purchase money paid depends upon the equities of each case. If it would be inequitable for such rescission to occur without restoration of money paid, then it must be restored.'

See also Miller v. Horn, Tex.Iv.App., 149 S.W. 769, no writ; Fink v. Hough, Text.Civ.App., 153 S.W. 676, wr.ref.; Sparenberg v. Collins, Tex.Civ.App., 63 S.W.2d 241, no writ.

In Lipscomb, the Supreme Court properly denied restitution to the purchaser, since it did not appear that the damages which the vendor might suffer from the breach exceeded the amount which had been paid by the purchaser. Since the damages which the vendor might suffer were uncertain, and since it did not appear that the amount which the vendor sought to retain was unreasonable as an estimate of such damages, the purchaser had shown no equities which would support his claim for restitution.

The approach of our Supreme Court in Lipscomb is best calculated to achieve justice. Dogmatic application of the majority rule leads to indefensibly absurd results. Under that rule of forfeiture the amount of the forfeiture will always and necessarily depend simply on the stage to which the purchaser's performance has progressed, with complete disregard of the amount of damages suffered by the vendor. The surprising result is that a purchaser who pays a substantial portion of the purchase price before defaulting is in a much worse position than the purchaser who pays nothing. In the latter case, the vendor would receive only compensation for his actual losses. In the former case, a strict application of the forfeiture rule would allow the vendor to get much more, in some cases, then compensation for the loss caused him by the purchaser's default. A rule which leads to the result that the purchaser's loss increases as the seriousness of his breach decreases is so unreasonably that it does not deserve serious consideration.

One of the most popular rationalizations of the forfeiture rule is that one should not be permitted to create a cause of action in himself by his own breach of his...