Osterberger v. Hites Const. Co.

Decision Date29 April 1980
Docket NumberNo. 39998,39998
PartiesThomas J. OSTERBERGER and Janet Osterberger, Plaintiffs-Respondents, v. HITES CONSTRUCTION COMPANY, Eugene F. Hites and Patricia S. Hites, Defendants-Appellants.
CourtMissouri Court of Appeals

Eugene E. Eimer, St. Louis, for defendants-appellants.

Pannell, Dodson & Robinson by Kurt D. Breeze, Festus, for plaintiffs-respondents.

SATZ, Judge.

This is an equitable action for rescission on direct appeal.

Plaintiffs, Thomas and Janet Osterberger, sued defendants, Hites Construction Company, and Eugene F. Hites and Patricia Hites, individually, alleging that defendants fraudulently concealed from plaintiffs the existence of an outstanding deed of trust on a house which was sold and conveyed to plaintiffs by defendants. In their prayer for relief, plaintiffs requested rescission of the instruments comprising the sale and conveyance and, also, sought actual and punitive damages. Defendants counterclaimed, basically seeking the balance and interest due on the promissory note executed by plaintiffs for payment of the house. Judgment was entered for plaintiffs on their claim for rescission and against defendants on their counterclaim. The trial court rescinded the sales contract for the house, plaintiffs' promissory note, the general warranty deed conveying the property, the deed of trust securing the promissory note and also rescinded and cancelled a trustee's deed by which the trustee conveyed the property back to defendant Hites Construction Company, after the company purchased the property at a foreclosure sale. In addition, the court entered a money judgment against defendants in the amount of $4,998.48, which represented $998.48 for recovery of plaintiffs' monthly payments under the promissory note, $3,000.00 for the down payment made by plaintiffs and $1,000.00 for attorney's fees. 1

This was a court tried case and, thus, we sustain the judgment of the court unless the judgment is against the weight of the evidence, or unless the court erroneously declared or applied the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). In addition, where, as here, no findings of fact or conclusions of law were requested or given, all issues are to be deemed found in accordance with results reached, and the judgment is to be affirmed under any reasonable theory presented by the evidence. E. g., S. G. Adams Printing v. Central Hardware Co., 572 S.W.2d 625, 627-628 (Mo.App.1978). Further, we accept as true all evidence and permissible inferences favorable to the plaintiffs, as prevailing parties, and we disregard any contradictory evidence. Id. at 628.

Viewing the evidence in the light of these principles, the record discloses that the entire transfer in question occurred on a Sunday, in March of 1975, when plaintiffs purchased a house from defendant, Hites Construction Company. Defendant Patricia Hites, the secretary-treasurer of Hites Construction Company, negotiated the sale with plaintiffs. She prepared all the instruments involved in this transaction prior to plaintiffs' arrival to complete the sale. The sales contract, promissory note, deed of trust and general warranty deed were all executed on the date of sale. The purchase price of the home was $32,750.00. As a down payment, Patricia Hites agreed to accept a boat owned by plaintiffs, valued by the parties at $3,000.00. Plaintiffs executed a promissory note to Hites Construction Company for the balance of $29,750.00 and secured this note by a deed of trust to Eugene J. Hites, the son of the individual defendants, as trustee for Hites Construction Company. Defendant Hites Construction Company conveyed the house to plaintiffs by a general warranty deed, which defendant Eugene F. Hites, as president of the company, signed at a later time on the date of the sale and not in plaintiffs' presence.

The instruments used to transfer the house, for example, the sales contract and general warranty deed, were standard forms and had specifically designated spaces which were to be used to reflect any encumbrances on the property being transferred. None of these instruments executed indicated that the property being transferred was subject to any prior encumbrance. However, at the time of the purchase, the property in question was subject to a recorded deed of trust in favor of Ozark Federal Savings & Loan (Ozark), which secured a construction loan of $21,000.00, made by Ozark to Hites Construction Company. Although Patricia Hites was aware of this outstanding deed of trust, she failed to disclose its existence during her negotiations with plaintiffs and she failed to insert a description of this encumbrance in the instruments prepared by her. Also, defendant Eugene F. Hites admitted that Hites Construction Company had transferred other property to other buyers by warranty deeds which likewise did not indicate outstanding deeds of trust.

Plaintiff Thomas Osterberger was transferred to another job in June of 1975 and moved his family to Michigan the following month. Payments on the promissory note were made from March until about August of 1975. Prior to their move, plaintiffs listed their house with a real estate agent who discovered the existence of the prior deed of trust on the property, and, although the agent had located a buyer who appeared to be willing to purchase the property and assume a single deed of trust, the purchase could not be completed because of the two outstanding deeds of trust.

Plaintiffs defaulted on their payments sometime in July or August of 1975, and instituted the present suit in January, 1976. Subsequently, in May, 1976, defendant Hites Construction Company foreclosed on the property. The company was the highest bidder at the foreclosure sale and purchased the property for $25,000.00. The property was then conveyed to the company by a trustee's deed prepared by defendants' attorney, which, unlike the warranty deed conveying the property to plaintiffs, specifically described the outstanding deed of trust to Ozark as an encumbrance on the property. As noted, the trial court rescinded the instruments reflecting the transfer of the property and entered a judgment in favor of plaintiffs against defendants in the amount of $4,998.48. Defendants filed their direct appeal.

Although the body of plaintiffs' petition is loosely couched in the general language of fraud, the specific relief prayed for, granted and in question here is rescission and not damages resulting from a tortious fraud. Defendants generally complain there was not sufficient evidence to support a fraud and, further, complain the trial court misapplied the relevant law. To understand defendants' specific arguments in support of their general complaints, we set out the pertinent principles of the relevant law, some of which defendants fail to mention and discuss.

The tort of fraud and deceit consists of "a representation; its falsity; its materiality; the speaker's knowledge of the falsity or his ignorance of its truth; the speaker's intent that his statement should be acted upon by the person and in the manner reasonably contemplated; the hearer's ignorance of the falsity of the statement; his reliance on its truth; his right to rely thereon; and his consequent and proximately caused injury". Ackmann v. Kenney-Toelle Real Estate Company, 401 S.W.2d 483, 488 (Mo. banc 1966). To recover in fraud and deceit it is not always essential that a false and fraudulent misrepresentation be made. Concealment of a fact which one has a duty to disclose properly serves as a substitute element for a false and fraudulent misrepresentation. Denny v. Guyton, 327 Mo. 1030, 40 S.W.2d 562, 590 (banc 1931). Upon discovering a fraud which induced a contract, a party may seek to affirm the contract and sue at law for damages, or, he may disaffirm the contract and sue in equity for its rescission. Id. 40 S.W.2d at 591. Obviously, then, rescission may be based upon actual fraud; i. e., a false representation of a material fact, made with the knowledge of its falsity and with the intent to deceive. However, rescission may also be based upon a false representation or a concealment, which, although described or labeled as fraudulent, is in reality a misrepresentation or concealment made innocently as a result of a misapprehension or mistake. Ellenburg v. Edward K. Love Realty Co., 332 Mo. 766, 59 S.W.2d 625, 629 (1933); see also Hudspeth v. Zorn, 292 S.W.2d 271, 276 (Mo.1956). As the court stated in the Love case: 59 S.W.2d l.c. 627.

"Appellant's contention overlooks the distinction between a case of actual fraud and one of constructive fraud. In actions at law to recover damages for fraud and deceit, it must be shown that false representations were made, with knowledge of their falsity and with fraudulent intent, but where, as in the case at bar, an action in equity is brought to rescind a contract on the ground that it was induced by fraudulent representations, it is not necessary to show that the party making the fraudulent representations knew of their falsity, or made them with an intent to cheat and defraud."

To support their general complaints, defendants specifically contend the transaction in question was an arms-length transaction and, thus, they had no duty to disclose to plaintiffs the existence of Ozark's deed of trust. We disagree. Admittedly, business is still business, and normally, where parties are dealing at arm's length, neither can legally complain about the mere silence of the other. See Ewing v. Miller, 335 S.W.2d 154, 156-157 (Mo.1960); compare, Shepherd v. Woodson, 328 S.W.2d 1, 7 (Mo.1959). However, in factual situations similar to the present case, our courts have carved out a number of important exceptions to the rule of nonliability for failure to disclose material facts. No single factor is necessarily determinative. However, we have imposed a duty to disclose on defendants who concealed facts...

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