Texas Auto Co. v. Arbetter

• Decision Date: 23 November 1927
• Docket Number: (No. 7843.)
• Citation: Texas Auto Co. v. Arbetter, 1 S.W.2d 334 (Tex. App. 1927)
• Parties: TEXAS AUTO CO. et al. v. ARBETTER et al.
• Court: Texas Court of Appeals

Page 334

1 S.W.2d 334

TEXAS AUTO CO. et al. v.ARBETTER et al.

(No. 7843.)

Court of Civil Appeals of Texas. San Antonio.

November 23, 1927.

Rehearing Denied January 4, 1928.

Appeal from District Court, Nueces County; W. B. Hopkins, Judge.

Suit for specific performance by the Texas Auto Company against I. Arbetter and another, who asked for affirmative relief against plaintiff and another.Judgment in favor of the defendants named in the original suit, and plaintiff and another appeal.Reformed, and, as reformed, affirmed.

E. B. Ward and S. E. Dyer, both of Corpus Christi, and R. L. Ball, of San Antonio, for appellants.

Boone & Savage and Felix A. Raymer, all of Corpus Christi, for appellees.

SMITH, J. I.

Arbetter and D. Zweig entered into a contract with Texas Auto Company whereby they agreed to purchase from the latter two business lots in the city of Corpus Christi, upon condition that the Auto Company furnish them an abstract "showing a marketable title" in the company to the property.The abstract was furnished the proposed purchasers within the time prescribed in the contract, was examined by the attorney for the purchasers, who refused to complete the purchase on account of objections to the title.The auto company brought this suit to enforce specific performance, and Arbetter and Zweig reconvened to recover earnest money which they had placed in escrow in the City National Bank.The latter pleaded that it was a mere stakeholder, and prayed for judgment for its costs and attorney's fees.Trial resulted in a directed verdict in favor of Arbetter and Zweig against the auto company and the bank for the earnest money, with interest from the date of the rejection of the title.The auto company has appealed on the whole case, and the bank as to the decree adjudging interest against it and the denial to it of recovery for attorney's fees.The parties will be hereinafter designated as the seller, the purchaser, and the bank.

The chief objection to the title shown in the abstract was directed at a deed by which one of the lots was conveyed by the Freeborn-Sherman Development Company, a remote vendor in the chain of title to the seller, to H. G. Sherman.It was disclosed in the abstract that the Freeborn-Sherman Development Company was a Texas corporation, of which S. A. Freeborn, A. Fred Cole, and H. G. Sherman were the only directors, as well as its president, vice president, and secretary-treasurer, respectively.The deed from the corporation to Sherman, who was its corporate secretary-treasurer, was executed by Cole, the vice president, and contained the recitation that it was so executed "by its vice president, authorized to act in the absence of the president and the president being absent."The deed bore the imprint of the corporate seal, and was attested by its secretary, H. G. Sherman, the vendee.

The consideration for the conveyance was recited therein to be "$5, together with other good and valuable consideration to it moving."Summarizing, it was disclosed in the abstract that valuable real estate belonging to the corporation was conveyed by its vice president (who was one of the three directors) for $5 and other but undisclosed consideration, to its secretary (another director), in the absence of its president (the third and only other director).From this statement arises the question to be here decided, Did the abstract, disclosing these facts, unexplained, show such "marketable title" in the seller as to entitle him to a decree for specific performance of the contract of sale and purchase?

It was provided in the contract of sale that the seller would furnish the purchaser with abstract of title within ten days, which was done; that within the next ten days the title should be examined, and objections, if any, pointed out to the seller; and that within ten days thereafter the deal should be closed, and the consideration paid to the seller, or the title rejected and the earnest money returned to the purchaser.No provision was made in the contract for the curing of objections to the title, if any should be disclosed in the examination thereof, but the seller nevertheless sought to cure the defects pointed out, and did in fact remedy some of them.Time was made the essence of the contract, but both parties seem to have waived this provision to the extent that the purchaser withheld rejection of the title and a demand for his earnest money, and the seller continued his efforts to cure the objections to the title, during a period of several days after the expiration of the time fixed for completing the contract.

The purchaser's written objections to the sufficiency and validity of the conveyance from the corporation to its secretary-treasurer, Sherman, was as follows:

"(1) No authority is shown for the making of such sale as this to H. G. Sherman.

"(2) Inasmuch as the abstract shows that H. G. Sherman was secretary of the corporation, and one of the directors at the time, in order to authorize a conveyance of this kind for the consideration recited therein to him, there must have been action taken by majority vote of the directors other than H. G. Sherman, and that action be evidenced by resolution, shown in the minutes of the directors of said corporation."

This objection was discussed at length between the parties and their counsel.The purchaser insisted that a written confirmation or ratification be obtained from Freeborn, the president of the corporation, whose absence at the time of the conveyance was disclosed by recitations in that instrument, and the seller undertook to conform to this requisition, but failed, and his failure resulted in the rejection by the purchaser.It was disclosed in the negotiations to obviate this objection to the title that Freeborn, Cole, and Sherman, who constituted the full directorate of the corporation at the time the conveyance was made, were still living, and were accessible.It was considered by the purchaser that Sherman, the beneficiary of the conveyance, was estopped to question the transaction, and no ratification was required of him.The seller obtained some sort of affidavit from Cole, the vice president, who had executed the conveyance, but the purchaser demanded a written declaration from Freeborn, whose silence was regarded as ominous under the circumstances.The seller approached Freeborn, who flatly refused to put his hand to any writing upon the subject, and the purchaser, apprised of Freeborn's attitude, refused to proceed without such writing.It developed in these negotiations that the corporation had been, and still is, in difficulties; that the three directors were involved with each other in unsettled differences, which might result in conjectural reprisals among them.When confronted with all these conditions, the purchasers refused to proceed with the contract.If these conditions created a reasonable doubt of the marketability of the title, the purchaser was justified in refusing to proceed, and the courts will not compel him to complete the purchase.

The term "marketable title," when applied to real property, means one reasonably free from such doubt as would affect the market value of the estate; one which a prudent man with knowledge of all the facts and their legal bearing would be willing to accept (5 Words and Phrases, First Series, page 4388 et seq.); not doubts based on captious, frivolous, or astute niceties, made up for the occasion, but grave and reasonable doubts, such as would induce a prudent man to hesitate in accepting a title affected by them, and such as would make it possible or reasonably probable that the purchaser's right may become a matter of investigation, and thus affect its value.A marketable title is one that will bring as high a price in the market with the purchaser's objection to its sufficiency as without.36 Cyc. 632;Maupin, Mark. Title, p. 705 et seq.;Roberts v. McFadden, 32 Tex. Civ. App. 47, 74 S. W. 105;Hollifield v. Landrum, 31 Tex. Civ. App. 187, 71 S. W. 979;Greer v. Stock Yards Co.(Tex. Civ. App.)96 S. W. 79.Under the head of "marketable title" it is said in Cyc:

"In a suit by the vendor to enforce performance of a contract for the sale of land, the vendee will not be compelled to accept the title unless it is a marketable one; that is, one which will not expose him to litigation.To force upon the vendee a title which he may be compelled to defend in the courts is to impose upon him a hard bargain; and this a court of equity, in the exercise of its discretion, will refuse to do, irrespective of the question whether the title is actually good or bad."

And it is said by Mr. Maupin, citing indubitable authorities in support of the assertion, that, "if there be any reasonable chance that some third person may raise a question against the owner of the estate, after the completion of the contract, the title will be deemed unmarketable."Page 711.And again (pages 728, 729):

"It has been frequently held that, if parol evidence should be necessary to remove any doubt as to the validity and sufficiency of the vendor's title, the purchaser cannot be compelled to complete the contract.He cannot be required to take a doubtful title which he must fortify, if impugned, by resorting to evidence perishable in its nature, and possibly unavailable to him when the necessity for it occurs.It must be observed, however, that a title is not necessarily doubtful simply because it requires to be supported by parol testimony.As a general rule, for example, title by inheritance depends principally upon matters in pais, or facts resting in the knowledge of witnesses.If those facts be clearly sufficient to establish the right of the vendor as heir, it is apprehended that the purchaser could not object to the title simply because it could not be established by...