Holverson v. Evans , 38 Idaho 428 ( 1923 )

DUNN, J.

— On August 18', 1919, appellants, who are husband and wife, entered into a written contract with respondent and one Charley Driseol, by which appellants agreed to sell and respondent and Driseol agreed to buy forty acres of land for $12,000, $1,000 to be paid in cash and the balance to be covered by eight promissory notes. The first of the notes, which was for $2,000, came due one month from the date of the contract and was paid. In addition there was paid to appellants on May 20, 1920, $270 interest on the deferred payments. Of the remaining notes the first two were for $2,000 and $2,500 each, to come due on November 1, 1920, and January 1, 1923, respectively. The next four were for $1,000 each, maturing on November 1,1924, 1925, 1926 and 1927, respectively, and the last for $500, due on November 1, 1928. All bore interest at 6 per cent per annum.

The contract provided that the purchasers should be entitled to possession of the premises on September 18, 1919, and continue in possession as long as they complied with its terms, and that they should pay the taxes for 1920 and subsequent years. It also provided that time should be of its essence and that on failure by the purchasers to make any of the deferred payments they should forfeit to appellants all money theretofore paid on the contract.

The purchasers defaulted in the payment of the second note for $2,000, which was due November 1, 1920. It may be fairly inferred from the record that immediately after appellants, on account of this default, began proceedings to dispossess the purchasers and claim forfeiture of the payments made, respondent, through his counsel, submitted to appellants the rescission contract involved in this action, which was signed by appellants. This rescission contract, after reciting the making of the sale contract above mentioned, the assignment of Driseol’s interest therein and rights thereunder to Holverson, the default of Holverson, failure to pay the note which came due November 1, 1920, and the interest due at that time on deferred payments, says:

“Now, Therefore, these presents, Witnesseth:

“That for and in consideration of said party of the second part yielding up and delivering to the parties of the first part the complete and unconditioned possession of the above described premises, it is mutually agreed by and between the parties hereto that the said sale contract be, and the same is hereby rescinded, canceled, annulled and abandoned.”

This rescission contract is dated March 16, 1921, and was signed and acknowledged by appellants on March 19, 1921.

On April 4, 1921, respondent began this action against appellants, alleging that by reason of the rescission contract appellants had become indebted to him in the sum of $3,270, the amount paid to appellants on the sale contract, with interest on said amount from March 30, 1921.

Appellants demurred on the ground that the complaint stated no cause of action against them. The demurrer was overruled, answer was filed and the case was tried, resulting in judgment for respondent, from which this appeal was taken.

Appellants assign numerous errors, but it will be unnecessary to pass upon any except the first, which involves the sufficiency of the complaint.

It is 'the contention of appellants that, since the parties have entered into a written contract to rescind the sale contract, the rescission contract, being in plain and unambiguous language, and there being no charge of fraud or mistake in the making thereof, must be held to embody the entire contract of the parties, and that to permit evidence of an implied contract on the part of appellants to repay the purchase money would be in violation of the well-settled rule against adding to or varying, by parol evidence, the terms of a written contract.

On the other hand, respondent contends that since there was a mutual rescission without an express agreement that the vendors should retain the payments made on the purchase price, the law implies an agreement on their part to refund the amounts received thereon.

We find no decision of this court touching the particular question involved here, and we therefore feel at liberty to determine the controversy thus presented in accord with principle, reason and justice rather than upon the authority of decided cases, the majority of which appear to be against our position.

Generally, we think, a majority of the cases hold that in the event of a naked rescission by mutual agreement of a contract for the sale of real property the law implies an agreement that the vendor will repay the purchase money received less the reasonable value of the use of the property, if the vendee has been in possession, unless it affirmatively appears from the rescission contract that such repayment was not to be made.

This does not seem to us a reasonable or just rule. Here are parties admittedly capable of making contracts for themselves. Why should not the rule apply that it is the duty of the law to enforce, not to make, contracts, thus leaving the rights of the parties to be adjusted according to the contract that they have made*? Why should the law lay down a hard and fast rule by which an intention is imputed to the parties, without facts upon which to base it, and which is as likely to promote injustice as justice?

Take the present ease as an example. It might easily be that the vendees considered themselves as better off by a thousand or more dollars to be released from liability on the $9,000 of notes still unpaid, even though they lost the $3,270 paid on the contract, than if they were compelled to complete the purchase. If so, it would be extremely unjust to the vendors to say that, in addition to releasing the vendees from the payment of the remaining notes, they must refund the payments received, notwithstanding the rescission agreement contained no intimation of such intention by the parties.

We think the rule suggested by Mr. Williston is the correct one, and we therefore adopt it:

“Where at the time of rescission of a bilateral contract it has been partly performed on one or both sides, the parties may agree simply to forego further performance and let past matters stand where they are, or they may agree not only to forego future performance but to restore the original status by returning payments already made or paying for other performance which has been rendered. Which of these contracts the parties in a particular case have made can depend on no rule of law, but on a determination of what the terms of their contract in fact were; and if that contract while providing for cessation of further performance, does not provide for the return of past payments or compensation for past performance, there can be no recovery of such payments or compensation, for the burden of proving any right is on one who asserts it. When a court says:

“ ‘As a general rule when a contract for the sale of land has been rescinded by the mutual assent and agreement of the parties, the contract is at an end, and, there being no agreement to the contrary, the vendee, not being at fault, may recover back the money paid on his contract,’ it can only be replied that there is no reason why an agreement to rescind a contract for the sale of land should be subject to any other rule than an agreement to rescind any other contract, and that to allow recovery of such payments on rescission of any contract by an agreement which does not provide for it is unwarrantably adding a term to the agreement of the parties. If the principle is sound not only payments made but property transferred or services rendered under any kind of contract should likewise form ■the basis of recovery where the parties agree to forego further performance of a partially executed contract. Of course, a contract to restore tbe original status like any other contract need not be in express terms, but to justify an action to restore that status on rescission of a contract by mutual assent, it must be found on a fair interpretation of the words or acts of the parties that they expressed an intention that that status be restored.” (Williston on Contracts, vol. 3, sec. 1827, p. 3146; McCreery v. Day, 119 N. Y. 1, 16 Am. St. 793, 23 N. E. 198, 6 D. R. A. 503; Eames Vacuum Brake Co. v. Prosser, 157 N. Y. 289, 51 N. E. 986.)

In the case at bar we think there is nothing in the rescission contract to indicate that there were any terms in the minds of the parties not expressed in the agreement, and we see no reason for refusing to apply to this contract the well-settled rule against the admission of parol testimony to add to or vary the terms of a written contract.

So far as this case is concerned, however, we think it comes within the rule adopted by some of the courts that holds the vendor to an implied liability to refund in case of a mutual agreement to rescind a contract for the sale of real property. The contract in the case at bar sets out the condition upon which the rescission was to be had. It is said that the contract of sale should be “rescinded, canceled, annulled and abandoned in consideration of said party of the second part yielding up and delivering to the parties of the first part the complete and unconditioned possession” of the premises. This is simply a statement of the express terms, of rescission, and the presumption is that this contract contains all the terms. In the case of Law Credits Co. v. Tibbitts, 160 Cal. 626, 117 Pac. 772, there was a mutual rescission in writing and in addition an agreement by the purchaser, as here, to surrender possession of the property, and the California court held that the purchaser had done all she was required to do, that is, surrender possession of the property, and that the seller was to do nothing but release the buyer from his obligation to pay under the original contract, and that he had done; that since the rescission contract contained no stipulation requiring the seller to refund payments made or the purchaser to pay for the use of the premises it would be inferred that there was a mutual waiver of all such claims. In our opinion it would be difficult, if not impossible, to find a case whose facts would be more nearly “on all-fours” with those of the case at bar.

In Tice v. Zinsser, 76 N. Y. 549, we think the substance of the rescission contract was the same as here, and the court said:

“The amount claimed by the plaintiff clearly arose under the contract of sale, and was embraced within the terms and the very letter of the agreement he subsequently executed. It was a part of his interest by virtue thereof; and when he surrendered all his right, title and interest under the same, and agreed that the contract from the date of the instrument be canceled and of no effect, he relinquished all claim to the $1,000 he had paid. The parties intended evidently to say, that from that time the plaintiff should be released from all further liability to pay; and that what each one had paid or lost by the contract should be given up, surrendered and canceled, as between themselves. The agreement of the parties having been reduced to writing, and such writing being susceptible of a plain interpretation, it disposes- of the case.”

In Lowry v. Robinson, 3 Neb. (Unof.) 145, 91 N. W. 174, the terms of rescission were somewhat more numerous than here, but it seems to us that this can make no difference. If the parties stipulate in writing that the contract shall be rescinded on the one condition that the buyer shall surrender possession, as here, the rules applicable to written contracts should apply as fully and effectively as if there were numerous conditions. In that case the court said:

“No fraud or mistake is alleged in the making of the memorandum of cancelation, and plaintiff cannot now be heard to say that the contract was canceled upon other or different conditions than those set out in the writing signed.”

This rule is also approved by Black on Rescission and Cancelation, vol. 2, sec. 417, p. 1028:

“Parties to a contract for the purchase and sale of real estate may always rescind it by mutual consent, and an agreement for such rescission will be binding on them both. If no terms of rescission are agreed on, the undoing of the original contract will be subject to the usual condition of a mutual restoration to the status quo, that is, the vendor will be entitled to resume possession of his property and the vendee to a restoration of whatever he may have paid under the contract. But it is entirely competent for the parties to determine upon other or additional conditions, and if the agreement for rescission sets out the terms and conditions fixed on, it is binding On them, and neither party can be heard to say that the cancelation of the contract was based on any different terms.”

The contract in the case at bar contained one condition on which rescission was to be had and it is clear that the minds of the parties did not meet on any other terms than those expressed in the contract.

The demurrer to the complaint should have been sustained. No cause of action for the return of the purchase money exists against appellants by reason of the rescission contract. The judgment is therefore reversed and the district court is directed to dismiss the action. Costs to appellants.

McCarthy and William A. Lee, JJ., concur.