Stevens v. American Sav. Inst., Inc.

• Decision Date: 15 July 1980
• Parties: H. B. STEVENS; Merl G. Tucker and Verla M. Tucker, husband and wife, Respondents, v. AMERICAN SAVINGS INSTITUTION, INC., a Washington Corporation; and Dr. Antonio Fernandez, aka Antone Fernandez, aka Dr. Anthony Fernandez, Defendants, Publishers Paper Co., a Delaware Corporation, Petitioner. CA 11582; SC 26673.
• Court: Oregon Supreme Court

Page 1057

613 P.2d 1057

289 Or. 349

H. B. STEVENS; Merl G. Tucker and Verla M. Tucker, husband and wife, Respondents, v. AMERICAN SAVINGS INSTITUTION, INC., a Washington

Corporation; and Dr. Antonio Fernandez, aka Antone

Fernandez, aka Dr. Anthony Fernandez, Defendants,

Publishers Paper Co., a Delaware Corporation, Petitioner.

CA 11582; SC 26673.

Supreme Court of Oregon.

Argued and Submitted March 4, 1980.

Decided July 15, 1980.

William B. Crow, of Miller, Anderson, Nash, Yerke & Wiener, Portland, argued the cause and filed briefs for petitioner.

Michael J. Clancy, Canby, argued the cause for respondents. With him on the brief were Raymond R. Reif, and Bettis & Reif, Canby.

Before DENECKE, C. J., and TONGUE, HOWELL, LENT and PETERSON, JJ.

HOWELL, Justice.

Plaintiffs, grantors, filed this suit to rescind a conveyance to American Savings Institution, Inc. (American Savings), relating to 85 acres of timber and farmland. The suit also sought rescission of a mortgage and promissory note executed by American Savings in favor of plaintiffs concerning the same property and rescission of a conveyance by American Savings to Publishers Paper Company (Publishers) of the timberland only. The trial court found that the president of American Savings, defendant Fernandez, had fraudulently obtained the conveyance from plaintiffs to American Savings, and entered a decree rescinding both conveyances and the mortgage from American Savings to plaintiffs. The decree also provided that Publishers have judgment against defendants American Savings and Fernandez for the amount Publishers paid for the timberland. Only Publishers appealed the decision of the trial court, contending that, because it had purchased the timberland for value and without notice of plaintiffs' claims, it should be declared owner of the timberland. The Court of Appeals affirmed the trial court, 43 Or.App. 191, 602 P.2d 669 (1979), and we granted review.

Plaintiffs Merl and Verla Tucker, together with plaintiff H. B. Stevens, acquired the 85-acre parcel of land in 1964. About 56 acres of the parcel were timberland; the balance of cleared and used for farming. The Tuckers lived in a house on the land until they moved in 1972. Stevens lived in a trailer home situated close to the main home and continued to live there throughout the land transactions and this suit. The two houses, along with barns and sheds, were located on the cleared portion of the 85-acre parcel.

Plaintiffs decided to sell the 85 acres and contacted Publishers. Robert Booth, a Publishers employee, inspected and appraised the property and offered Stevens $85,000 for the timberland only. Plaintiffs rejected the offer because they did not want to divide the property and sell just the timberland. Booth then decided to purchase the farmland for himself as an accommodation to Stevens and offered an additional $15,000 for the farmland. Plaintiffs eventually rejected the offer and sought another independent land appraisal. They then listed the entire property with several realtors at a sale price of $155,000.

On January 20, 1976, defendant Fernandez visited Stevens, inspected the property and, on behalf of American Savings, offered to purchase the entire 85 acres for the full price of $155,000. Fernandez executed a written offer, entitled "Deposit Receipt and Agreement of Sale," by the terms of which American Savings would pay $30,000 as a down payment and $125,000 in five equal annual payments; the contract of sale would contain a "standard timber restriction" clause (i. e., no timber would be cut until one-half of the purchase price is paid); the transaction would be closed through escrow, and Stevens would have the right to remain on the property up to 90 days after closing of the escrow. Plaintiffs accepted Fernandez's offer the next day.

Over the next couple of days Fernandez met with Stevens and the Tuckers and discussed arrangements for their splitting of the proceeds from the sale. He drafted and plaintiffs signed a document that specified how plaintiffs would share in the proceeds. But that document, entitled "Agreement," also provided the following: American Savings agreed that Stevens would have 90 days to remove his house trailer from the premises; the total sales price would be $155,000 in payments as arranged in the first Agreement of Sale (dated January 20, 1976); the first Agreement of Sale and all its conditions and restrictions are null and void; and "title and possession are in the grantee, by virtue of deed executed by grantors and herewith handed to grantee."

On January 31, 1976, plaintiffs signed a warranty deed conveying to American Savings the entire parcel of property, and they and Fernandez, on behalf of American Savings, signed a mortgage prepared by Fernandez whereby American Savings promised to pay $155,000 for the land as per the agreed payment schedule. Neither the deed nor the mortgage contained the conditions the plaintiffs had intended, i. e., the 90-day permissive occupancy for Stevens and the standard timber restriction clause. On the contrary, the mortgage specifically provided:

" * * * that the mortgage does not extend to the land with timber coverage in lieu of Note-Payment made to Grantors; that the premises are in the exclusive possession of Mortgagor and they shall remain thus; * * *."

Plaintiffs deny that they knew or agreed to this provision. Plaintiff Merl Tucker testified that the mortgage he signed did cover the timberland and that Fernandez must have altered the mortgage afterward. Fernandez recorded his deed from plaintiffs on February 4, 1976, but he did not record the mortgage until February 23, 1976, after he had sold the timberland to Publishers.

Prior to February 4, 1976, after he had begun negotiating with plaintiffs, Fernandez contacted Publishers and offered to sell the timberland. He told Publishers that he wanted to close the timberland sale by February 14, 1976. Booth, the Publishers employee, reappraised the land without an inspection but merely relying on his knowledge or logging activity in the area and on his previous appraisal. He determined that Publishers should pay only $80,000 for the timberland. Fernandez asked $85,000 for the timberland but quickly assented to a sale price of $80,000. Publishers then obtained a preliminary title report on February 5, 1976, that showed that American Savings had purchased the entire parcel (timberland and farmland) from plaintiffs and held title as of February 4, 1976. Fernandez, on behalf of American Savings, executed a deed on February 10, 1976, conveying the timberland to Publishers. That deed was recorded on February 13, 1976.

Receiving his money from Publishers, Fernandez paid plaintiffs their down payment on February 13, 1976. Stevens continued to live on the property and continued to be in contact with Fernandez. Plaintiffs did not suspect any irregularities in their transaction with Fernandez until April of 1976 when they read newspaper accounts of criminal and civil charges pending against Fernandez. Plaintiffs then investigated and discovered that Fernandez, on behalf of American Savings, had conveyed the timberland to Publishers.

The trial court held that the conveyance from American Savings to Publishers should be rescinded because Publishers failed to prove its affirmative defense that it was a bona fide purchaser without notice. Publishers argues that because plaintiffs, by their own negligence, vested title in their grantee, plaintiffs made the fraud possible and...