Wolken v. Wade

• Decision Date: 17 February 1987
• Docket Number: No. 15294,15294
• Citation: 406 N.W.2d 720
• Parties: Fred A. WOLKEN, Carol L. Wolken, and Daniel L. Wolken, Plaintiffs and Appellees, v. Leslie L. WADE and Idella S. Wade, Defendants and Appellants. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 720

406 N.W.2d 720

Fred A. WOLKEN, Carol L. Wolken, and Daniel L. Wolken Plaintiffs and Appellees, v. Leslie L. WADE and Idella S. Wade, Defendants and Appellants.

No. 15294.

Supreme Court of South Dakota.

Considered on Briefs Feb. 17, 1987.

Decided May 27, 1987.

A.P. Fuller of Amundson, Fuller & Delaney, Lead, for plaintiffs and appellees.

Gerald M. Baldwin of Baldwin & Kelley, Custer, for defendants and appellants.

ZINTER, Circuit Judge.

This is an appeal from a judgment allowing rescission of an Offer and Agreement to Purchase (Agreement) real estate. Fred, Carol, and Daniel Wolken (Wolkens), appellees-vendees, commenced this action seeking a return of their earnest money from Leslie and Idella Wade (Wades), appellants-vendors. The trial court held that the Agreement was void ab initio due to mistake and prospective failure of consideration relating to title defects. It allowed rescission of the Agreement and ordered the earnest money returned to Wolkens. We reverse.

The material facts are not in dispute. On April 27, 1982, Wolkens and Wades entered into the Agreement to purchase a gold mining operation. The operation consisted of two separate interests in real property. The "deeded property" contained a home, a gold processing mill, and some buildings. The sale also included an unpatented placer mining claim described as the "remaining part of Valley Mineral claim no. MMC42392 (SD) and all state and federal permits in their [the Wades] possession" (Valley mineral claim). This placer claim was the source of ore used in the gold mining operation. Placer deposits were removed from the Valley mineral claim and trucked to the deeded property where they were milled and gold was extracted. The placer claim was a material part of the Agreement to purchase the gold mining operation.

A title opinion concerning the merchantability of the deeded property was issued to the Wolkens by an attorney on May 26, 1982. Additionally, the attorney prepared a quit claim deed to the Valley Mineral claim in anticipation of closing; however, Wolkens did not request an examination of the title to the claim.

Wolkens paid $5,000 earnest money on execution of the Agreement and had originally agreed to tender the balance of the purchase price on May 20, 1982. However, at the time of execution of the Agreement, Wolkens were unsure of their ability to raise the balance and the closing date was therefore extended to June 2, 1982. Wolkens were still unable to raise the balance of the purchase price by June 2, 1982, and as a result on June 9, 1982, the parties agreed to further extend the closing date to June 30, 1982, in consideration of the payment by Wolkens of an additional $3,000. These extensions were granted despite the fact Wades moved from the premises and acquired a new residence.

Prior to the extended closing date, Wolkens learned that Ventling Mining, Inc. (Ventling) claimed an ownership interest in the Valley mineral claim superior to that held by Wades. The allegation was that the Bureau of Land Management (BLM) cancelled Wades' placer claim for failure to file proof of annual assessment and Ventling had filed an intervening placer claim to the property. As a result a meeting was held between the parties. Wades convinced Wolkens of their ownership rights by contending that Wades need not file the proof of annual assessment required by BLM regulations. Wolkens accepted this contention although the BLM position was later upheld by the United States Supreme Court in 1985. ¹ On the closing date, Wolkens were still unable to raise the balance of the purchase price. Realizing they could not perform, Wolkens relinquished their rights in the Agreement and signed a release of the earnest money.

Upon learning of the BLM's declared abandonment prior to the closing date, Wades promptly began measures to correct their title. On June 23, 1982, Wades staked and filed a "lode" claim on the same property. Although Ventling had staked and filed a "placer" claim on June 4, 1982, on July 28, 1982, Wades obtained a quit claim deed from Ventling conveying all of Ventling's interest in the Valley mineral claim that Wades had agreed to convey to Wolkens in the Agreement.

Shortly after the closing date, Wolkens discovered a June 3, 1982, letter from the BLM declaring the Valley mineral claim cancelled and abandoned as of December 31, 1981, for failure to file proof of annual assessment. On or about July 19, 1982, Wolkens demanded return of their purchase money on the grounds that Wades' claim was cancelled by the BLM and Ventling had acquired title. On Wades' refusal to return the earnest money, Wolkens commenced suit on September 16, 1983. Wolkens' complaint alleged that as of June 30, 1982, Wades could not have transferred sufficient title in the Valley mineral claim because on said date the claim had been revoked and cancelled by the BLM and the property had been restaked in the name of Ventling. Wolkens relied on no other defects of title. However, at the trial held on July 2, 1985, Wolkens introduced evidence of a second title defect. Wolkens alleged that by virtue of a recorded lease, Lyle Heath (Heath) owned superior rights to mine and remove the minerals from the Valley mineral claim. ²

The issue presented is whether Wolkens, having defaulted on the Agreement because of their inability to obtain financing, may rely on either of these alleged title defects to excuse their breach, rescind the contract and recover their purchase money.

There is no dispute that although Wolkens had knowledge of the potential title defect concerning Ventling's claim to the Valley mineral claim, Wolkens relied on Wades' assurances of good title and released the earnest money without tendering performance or demanding that the defect be cured. Subsequently, Wolkens requested their purchase money back despite the fact they never could have performed. Although the trial court acknowledged the rule of Rapp v. Petrick, 61 S.D. 426, 249 N.W. 736 (1933), that generally a vendee must first tender the purchase price prior to rescission, it held such a tender by Wolkens was not necessary because at the time the parties contracted, Wades did not have good title to the Valley mineral claim. The trial court reasoned that because title was defective at that time, Wolkens' consent to the Agreement and the subsequent release was obtained by mistake and that the consideration for said agreements would have failed at least in part. The trial court concluded that because of such mistake and prospective failure of consideration, the agreement and release were void ab initio and therefore Wolkens were not required to tender the purchase price prior to invoking rescission.

On appeal Wades dispute these conclusions and contend that any alleged defects in their title were remediable defects, or in the alternative, that such defects were waived by Wolkens' knowledge of potential defects, their failure to examine title, and their release of the earnest money. Wades contend that under these facts Wolkens cannot recover their earnest money since Wolkens did not tender payment of the amount due under the Agreement. We agree with Wades.

Although the Agreement did not specify the quality of title to be conveyed to the Valley mineral claim, where the contract does not stipulate quality of title, there is an implied obligation on the part of the seller to furnish good or merchantable title, but not necessarily a conveyance in the form of a warranty deed. Boekelheide v. Snyder, 71 S.D. 470, 26 N.W.2d 74 (1947). Agreements in contracts for the sale of property whereby vendee agrees to pay and vendor agrees to execute and deliver a deed conveying good title are mutual dependent covenants and neither party is in default until the other has performed or tendered performance of the acts requested of him by the terms of the contract. Rapp, supra; Benton v. Davison, 51 S.D. 91, 212 N.W. 500 (1927); Boekelheide, supra.

This court, like most jurisdictions, has adopted the so-called American Rule providing that ordinarily in the absence of misrepresentation or fraud a purchaser cannot, prior to the time fixed by the contract for conveyance, complain that the seller's title is deficient or encumbered. "An incumbrance or other defect removable at the time of the completion of the purchase is not a ground for rescission." Renner v. Crisman, 80 S.D. 532, 537, 127 N.W.2d 717, 720 (1964); Munderloh v. Seastrom, 270 N.W.2d 377 (S.D.1978). See generally Annot. 109 A.L.R. 242. The general rule which prevents a vendee from rescinding and recovering purchase money because of a mere defect or other weakness in the vendor's title existing on the date of the contract is especially applicable as against a vendee who himself is in default in his payments. Knapp v. Davidson, 179 Wis. 493, 192 N.W. 75 (1923). " 'All the vendee may rightfully insist upon ... is that the title be perfect at the time fixed by the contract for final performance.' " Luck Land Co. v. Linstrom, 48 S.D. 21, 23, 201 N.W. 707, 708 (1924), quoting Smith v. Kurtzenacker, 147 Minn. 398, 180 N.W. 243 (1920).

Time for conveyance of good title was not made of the essence in the Agreement. Time is never considered of the essence of the contract, unless by its terms expressly so provided. SDCL 53-10-3. Where time is not of the essence, a contract vendor has a reasonable time to provide good or merchantable title. Renner, supra; Pederson v. McGuire, 333 N.W.2d 823 (S.D.1983); Vangsness v. Bovill, 58 S.D. 228, 235 N.W. 601 (1931). Although the vendor's title in Rapp was not marketable at the time contemplated for closing, we denied recovery of the vendee's earnest money because the vendee never put the vendor in default by offering to perform his part of the contract. As long as such contracts are in force and unrescinded or not abandoned, there can be no recovery of the money paid on the contract unless the vendee shows full...