Robison v. Katz
| Decision Date | 18 March 1980 |
| Docket Number | No. 3665,3665 |
| Parties | H. E. (Bud) ROBISON d/b/a Robison Realty Company, Plaintiff-Appellee, v. Beverly KATZ, Defendant-Appellant, Opal A. Campbell and Sam Q. Campbell, Defendants-Appellees. Beverly KATZ, Counterclaimant, Cross-Claimant-Appellant, v. H. E. (Bud) ROBISON d/b/a Robison Realty Company, Counterdefendant-Appellee. Opal A. CAMPBELL, Plaintiff-Appellee, v. Beverly KATZ, Defendant-Appellant. Beverly KATZ, Defendant-Appellant, Counterclaimant, Cross-Claimant, v. SUTIN, THAYER & BROWNE, Appellees. |
| Court | Court of Appeals of New Mexico |
This case arises out of a real estate transaction which the vendee claims she was induced to enter by the fraudulent misrepresentations of the principal vendor and the real estate broker. The issues we consider in this appeal are: 1. whether rescission of a contract may be granted when the defrauded party is unable to restore the other party to the status quo ante ; 2. whether a party who obtains rescission is also entitled to consequential damages; 3. whether punitive damages are proper in the circumstances of this case; 4. whether a party who failed to object below can raise the issue of excessive attorneys' fees on appeal; and 5. whether a civil cause of action by one party to a telephone conversation exists against the other party who allowed a third person to listen on an extension and record the conversation.
This court has jurisdiction over this appeal pursuant to § 34-5-8, N.M.S.A.1978. Defendant Campbell's motion to dismiss for lack of jurisdiction was denied by this court on September 17, 1979. Although appellant Katz filed a petition in bankruptcy in federal court in Albuquerque on November 16, 1978, those proceedings do not bar our consideration of this appeal, since the trustee in bankruptcy abandoned the assets connected with this appeal on December 21, 1978. Although a determination of bankruptcy is pending in federal court, a state court may consider claims involving property which has been abandoned by the trustee in bankruptcy. Vybiral v. Schildhauer, 144 Neb. 114, 12 N.W.2d 660 (1944). Katz is the proper party to pursue this appeal; because, when a trustee in bankruptcy abandons an asset, the property or right reverts to the bankrupt. Abo Land Co. v. Tenorio, 26 N.M. 258, 191 P. 141 (1920). The court may determine Katz' assets and liabilities with respect to the subject matter of this suit, as both assets and liabilities have been abandoned by the trustee in bankruptcy. A trustee who abandons an asset also abandons any liabilities that accompany it. In re Polumbo, 271 F.Supp. 640 (W.D.Va.1967).
Plaintiff-appellee Bud Robison brought this suit in the District Court of Bernalillo County for a declaratory judgment pursuant to §§ 44-6-1 et seq., N.M.S.A.1978. Robison requested the trial court to determine his liability, if any, for misrepresentations made in connection with the sale of the Green Valley Mobile Home Park to defendant-appellant Beverly Katz. Robison was the real estate broker for the owners of the park, defendants-appellees Opal Campbell and Sam Q. Campbell (hereafter Campbell). The park was listed exclusively with him. Katz counterclaimed against Robison and cross-claimed against the Campbells on the basis of fraud, misrepresentation, and breach of fiduciary duty, seeking rescission and consequential and punitive damages. Campbell cross-claimed against Robison for damages for abuse of privacy for having had a third party listen to and record some of their telephone conversations. She also filed a suit against Katz for the collection of rent due on a house owned by Campbell in Los Alamos. The rental arrangement had been part of the trailer park real estate transaction, and the two cases were consolidated.
The trial court found that Robison and Campbell had negligently misrepresented certain material facts to Katz on which she had relied in deciding to purchase the trailer park. On these grounds, it awarded Katz $87,585 in damages from which it allowed Campbell various set-offs, thereby reducing Katz' total award to $26,789 plus costs. Neither consequential nor punitive damages were allowed. The court granted an attorneys' charging lien to the firm of Sutin, Thayer and Browne, Katz' attorneys, for $49,099.26 on the proceeds of the judgment in her favor. Campbell was awarded $3,000 plus costs and attorneys' fees against Robison for the unauthorized recordation and transcription of the telephone calls.
Katz raises six points on appeal, asserting that: 1. the court erred in denying rescission; 2. the court incorrectly set off the balance due on the real estate contract against the damages awarded Katz; 3. the court's computations of Katz' monthly profit was incorrect; 4. & 5. Katz should have been awarded consequential damages and punitive damages; and 6. the attorneys' fees granted in the charging lien were excessive. The Sutin firm appeals the manner of computing Katz' final award of damages which has the effect of giving Campbell's set-offs priority over the attorneys' charging lien. Robison appeals the award of damages against him in favor of Campbell. We consider all of these issues in order, except Katz' points 2 and 3 and the Sutin firm's appeal. These issues are moot because we allow rescission.
For the purchase of the park and three trailers located on it, Katz conveyed to the Campbells her house in Los Alamos, a duplex, valued at $57,717, made a downpayment of $20,000 in cash, and signed a real estate contract with the Campbells under which she assumed the underlying mortgages and real estate contracts on the park and agreed to pay the Campbells $30,804.47 plus interest. Katz then rented an apartment in the duplex from Campbell, and Campbell rented a trailer space in the park from Katz. By the time of trial, both parties claimed the other owed them rent.
Katz made all the payments on the underlying mortgages and real estate contracts until August 1977, when she defaulted on the Stepnoski contract. Stepnoski then terminated the contract. This happened before trial. Between the time of closing and the time of trial, Katz also sold or mortgaged the trailers she had bought from Campbell.
The trial court found that Campbell, who had no contract with Katz before the closing, failed to disclose the poor condition of the water, septic, gas and electrical systems in the park. She did not ensure that the information she supplied Robison was accurate, nor that Robison disclose material and accurate information to Katz. Robison failed to investigate the information supplied to him by Campbell or to check information he had acquired about the park from other sources. He failed to inform Katz that the septic and water systems in the park were old and inadequate; he represented the repair and maintenance expenses, including sewer and septic costs, as $700 per year, when in fact they had cost the Campbells in excess of $7,700 per year; he falsely asserted that the park was in good operating condition; and, knowing Katz' needs and experience, he misrepresented the park as a good business investment for her.
The court determined that Robison and Campbell negligently misrepresented to Katz the physical condition of the park. It concluded that 1) since the misrepresentations were material and justifiably relied upon by Katz to her detriment, Katz would be entitled to rescission; but that 2) Katz' inability to return the trailer park and restore the Campbells to the status quo ante barred her from obtaining that remedy. Only the second part of the conclusion is challenged on appeal. Katz asserts that rescission is proper, even when the parties cannot be put into the position of the status quo ante, considering the circumstances of the case. We agree with Katz.
The general rule in New Mexico is that rescission should be granted a party who, in entering a contract, justifiably relied on a misrepresentation of a material fact, irrespective of the good or bad faith of the party making the misrepresentation. Prudential Ins. Co. of America v. Anaya, 78 N.M. 101, 428 P.2d 640 (1967); Jones v. Friedman, 57 N.M. 361, 258 P.2d 1131 (1953); see, Maxey v. Quintana, 84 N.M. 38, 499 P.2d 356 (Ct.App.), cert. denied sub nom. Jack Dailey Realty, Inc. v. Maxey, 84 N.M. 37, 499 P.2d 355 (1972); Thrams v. Block, 43 N.M. 117, 86 P.2d 938 (1938). Accord, Dobbs Remedies § 9.1 (1973) (). It is immaterial whether the misrepresentations were made directly by a party to the contract, or by his agent. Thrams, supra.
Generally, the purchaser is allowed to rescind a contract only if he can place the vendor in the status quo ante. Gottwald v. Weeks, 41 N.M. 18, 63 P.2d 537 (1936); 17 Am.Jur.2d Contracts § 512 (1964). However, this rule need not be iron-clad, as the trial court assumed. In several states, it is applied according to equitable principles. Delta Investing Corp. v. Moore, 366 F.2d 516 (6th Cir. 1966); Jennings v. Lee, 105 Ariz. 167, 461 P.2d 161 (1969); Spencer v. Deems, 43 Cal.App. 601, 185 P. 671 (1919); Limoli v. Accettullo, 358 Mass. 381, 265 N.E.2d 92 (1970); see, 17 Am.Jur.2d, supra, § 514; see generally, Rhoads v. Leonard, 113 F.Supp. 411 (W.D.Okla.1953).
In Gottwald, supra, the Supreme Court indicated that the rule was not to be rigidly applied in New Mexico. It stated that strict compliance was not necessary where it "has been rendered impossible by circumstances for which the purchaser is not responsible, or for which...
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