Edwards v. Muri , 73 Mont. 339 ( 1925 )

It would appear contrary to elementary principles of law and equity for a vendor to retake the property sold, to abrogate, annul and terminate the contract, to induce the other party to consent to a mutual rescission and abandonment of the contract, to extinguish the same, and thereafter to attempt to enforce the provisions of the contract according to the terms thereof. Plaintiffs cannot disaffirm and affirm the contract at the same time. If it is an abrogation or rescission of the contract then each party must be placed in the same position in which he was before entering into the contract. There would be no restoration of the status quo if plaintiffs were permitted to recover the lands by simply taking them without notice and at the same time hold the purchase money paid and try to recover other installments: (See Ogg v. Herman, 71 Mont. 10, 227 P. 476;Mahon v. Leech, 11 N.D. 181, 90 N.W. 807; Lasher v.Loeffler, 190 Ill. 150, 60 N.E. 85; Finch v. Sprague,117 Wash. 650, 202 P. 257, citing 13 C.J. 651; Burmester v.Horn, 35 Cal. App. 549, 170 P. 674; Gaume v. Sheets,181 Cal. 119, 183 P. 535; Ward v. Warren, 44 Or. 102,74 P. 482; Warren v. Ward, 91 Minn. 254, 97 N.W. 886.)

Appellant is entitled to return of moneys paid. (Dietz v.Rabe, 65 Mont. 500, 211 P. 343; Heilig v. Parlin,134 Cal. 99, 66 P. 186; Phelps v. Brown, 95 Cal. 572,30 P. 774; Drew v. Pedlar, 87 Cal. 443, 22 Am. St. Rep. 257, 25 P. 749; Post v. Liberty, 45 Mont. 1, 121 P. 475.) The vendee having defaulted in the contract and having abandoned the same, the vendors elected to terminate the contract in so far as future rights thereunder were involved, but to keep the same alive to determine their rights already accrued by reason of the contract and the breach thereof. Appellant has based his appeal solely upon the false premise that there was a mutual rescission of the contract, and for that reason all his cases cited and relied upon are not applicable in this case, as there was no mutual rescission of the contract. The law applicable to cases similar to this is stated in 13 C.J., at page 615, as follows: "Where one party to a contract abandons it or refuses further performance, the other party is entitled to rescind. He is not, however, bound to rescind, but may keep the contract alive and sue upon it for a breach; or he may adopt a middle course and treat the contract as at an end for the purpose of adjudging the rights of the parties as to the breach." This rule is sustained by the following decisions: Clark v.American Development Min. Co., 28 Mont. 468, 72 P. 978;Cook-Reynolds Co. v. Chipman, 47 Mont. 289, 133 P. 694;Fratt v. Daniels Co., 47 Mont. 487, 133 P. 700; DeMille v. Casey, 115 Misc. Rep. 646, 189 N.Y. Supp. 275; Winton v.Spring, 18 Cal. 451, 452; Weil v. Jones, 53 Cal. 46;Hayes v. City of Nashville, 80 Fed. 641, 26 C.C.A. 59; AnvilMin. Co. v. Humble, 153 U.S. 540, 38 L. Ed. 814, 14 Sup. Ct. Rep. 876 [see, also, Rose's U.S. Notes]; United Press Assn. v.National News Assn., 237 Fed. 547, 150 C.C.A. 429. We submit that the facts in this case come within this rule.

Assuming, for the sake of argument, that there was a mutual rescission of the contract, still the appellant cannot claim restitution and the right to be placed in statu quo unless he was without fault and not in default under the contract. (Winton v. Spring, 18 Cal. 451; Aderholt v. Wood, 66 Cal. App. 666, 226 P. 950; Suburban Homes Co. v. North,50 Mont. 108, Ann. Cas. 1917C, 81, 145 P. 2; Bedford v.Burton, 106 U.S. 338, 27 L. Ed. 112, 1 Sup. Ct. Rep. 98;Pelioan v. Waldman, 54 Cal. App. 116, 201 P. 344; 27 R.C.L. 428, 641.) The complaint herein attempts to state two causes of action; the first sets up a contract, made a part of the complaint, by the terms of which plaintiffs agreed to sell and defendant to purchase certain lands at the agreed price of $6,170, and for which amount defendant made, executed and delivered his note payable December 31, 1924. The complaint alleges that by the terms of said contract the defendant agreed to pay all taxes assessed against the land and to pay the interest on the note promptly each year. It then alleges a breach of the contract by failure to pay either taxes or interest after the year 1920; and that plaintiffs elected to declare the contract null and void under the option given them in the contract, and served upon defendant a notice to that effect on May 8, 1922. Plaintiff seeks to recover the amount due under the contract in taxes and interest up to the date of such notice.

The second cause of action is simply upon a promissory note for the sum of $388.50, with interest and attorney's fees, and is in the usual form of a complaint therefor.

The defendant interposed a demurrer to the complaint, which was by the court overruled. Thereupon he answered, in effect admitting all of the allegations of the first cause of action, and setting up an affirmative defense in the nature of a cross-complaint, in which he alleges that the contract referred to was entered into by mutual mistake as to the condition of a certain pipe-line for the conduct of water from the canal of the Cartersville irrigation district to the land. He further alleges that the plaintiffs made misrepresentations to him regarding the pipe-line on which he relied and without which he would not have entered into the contract, and that the contract was, by reason of these facts, mutually rescinded by the parties, each withdrawing therefrom for cause. He sets forth sums expended by him in payment of the first year's taxes, in constructing improvements and in farming operations on the land, and seeks to be placed in statu quo by judgment against plaintiffs for the amounts expended.

On the trial defendant objected to the introduction of any testimony, which objection was overruled. At the close of plaintiffs' case he moved a dismissal on the ground that plaintiffs had failed to establish either cause of action. The motion was denied. On May 22, 1923, the court rendered judgment for plaintiffs in accordance with their prayer for relief.

In the record before us, after recitation of the pleadings, and before that of the judgment, appears the following statement: "The trial of the case was commenced March 31st, 1923, and tried to the court as an equity case and the jury dismissed. The court took the case under advisement and the defendant duly submitted before decision, the following requested findings of fact." There is then set out defendant's proposed findings.

Error is assigned upon the following actions of the court: (1) Overruling the demurrer to the complaint; (2) overruling objection to the introduction of testimony; (3) denying motion to dismiss; (4) failing to make findings of fact; (5) rendering judgment in favor of plaintiffs; (6) refusing to render judgment in favor of defendant.

Counsel for defendant does not attempt, in his brief or by oral argument, to present these specifications other than as they are treated, inferentially, in presenting the following contentions: That the note, the subject matter of the second cause of action, did not discharge the original debt nor create a debt independent thereof; (2) that the plaintiffs abandoned, abrogated, and terminated the contract, and, by acquiescence of the defendant, it was mutually rescinded; (3) the defendant is entitled to the return of the money paid; (4) plaintiffs cannot abandon their contract or enforce forfeiture and recover on the contract; (5) the plaintiffs were not entitled to a forfeiture; (6) the court having failed to make requested findings, the judgment must be set aside. These contentions will be taken up in the order in which they are argued.

1. In support of his first contention counsel cites Blenz v.[1] Fogle, 127 Wash. 224, 220 P. 790, citing Leschen Co. v. Mayflower Gold Mining Reduction Co., 173 Fed. 855, 25 L.R.A. (n.s.) 1, 97 C.C.A. 465, and other cases in point. The rule contended for is laid down in the cases cited, but with the qualification, "in the absence of an agreement between them [the parties] to that effect," and they correctly state the rule that the burden of showing an agreement rests upon the one asserting it.

The testimony regarding the purpose of giving the note is very meager. J.E. Edwards testified, when asked concerning payments, that "the first year's interest was paid by a promissory note," and later, in introducing the note, that the defendant gave it "in payment of the first year's interest." That it was his understanding that the note paid the interest for the first year is evidenced by the fact that, in the complaint, plaintiffs sued, in the first cause of action, for interest after the first year and sued on the note in question as an independent transaction. That this was also the understanding of the defendant is shown by the fact that he did not deny, on the stand, the statement of plaintiff, but, when asked by the court, "You intended to pay the interest with the note?" his reply was, "Yes"; and again, when he was asked, "So far as you and Mr. Edwards were concerned that transaction was completely closed?" he replied, "The first year, yes."

The court evidently and necessarily found from this testimony[2] that there was an agreement between the parties that the note would be accepted in payment, or that, in the language of the decision in the case of Leschen v. MayflowerGold Mining Reduction Co., above, it was "the indubitable intention of both parties" to extinguish the pre-existing debt by the taking of the note. In support of the judgment on the second cause of action a finding to that effect will be presumed. (Haggin v. Saile, 23 Mont. 375, 59 P. 154; Slater BrickCo. v. Shackleton, 30 Mont. 390, 76 P. 805; Hansen v.Larsen, 44 Mont. 350, 120 P. 229.)

By accepting the note plaintiffs waived the right to declare[3] the contract terminated by the breach thereof, and extended the time in which the amount might be paid, which extension was a sufficient consideration for the note. (Sec. 8432, Rev. Codes 1921; Emerson-Brantingham I. Co. v.Anderson, 58 Mont. 617, 194 P. 160.)

While, therefore, the original debt for which this note was given arose out of the contract for the sale of the land, it stood on no different basis at the time of the trial than if it had been given in an entirely different transaction, and the entry of judgment thereon was not erroneous.

2. As to the second contention, the evidence clearly[4, 5] establishes the fact that defendant defaulted in payment and left the premises, and that thereafter plaintiffs leased them to a third party, but with the understanding that, if defendant returned, he was still to have possession. This action did not terminate the contract (Gutierrez del Arroyo v.Graham, 227 U.S. 181, 57 L. Ed. 472, 33 Sup. Ct. Rep. 248 [see, also, Rose's U.S. Notes]), but, defendant having thereafter continued in his default, plaintiffs on May 8, 1922, terminated the contract by written notice, as provided for in the contract. Counsel for defendant contends that, as this action was acquiesced in by defendant, it was a rescission of the contract by mutual consent. But this cannot be.

Section 7563, Revised Codes of 1921, provides that "a contract may be extinguished in like manner with any other obligation, and also in the manner prescribed by this chapter." Thus, by mutual consent, the parties to a contract may terminate the contract and all obligations thereunder. But in order to thus terminate the contract there must be an intention on the part of each, at the same time, to rescind the contract — a meeting of the minds. Rescission "is the unmaking of a contract, requiring the same concurrence of wills as that which made it, and nothing short of this will suffice." (Clark v. American Dev. Min.Co., 28 Mont. 468, 72 P. 978.) "Mutual rescission, or rescission by agreement, has been defined as the discharge of both parties from the obligation of a contract, assumed to be in existence and to be legally binding, by a new agreement made subsequently to the original contract and before performance thereof is due." (13 C.J. 600; Holland v. Rhoades, 56 Or. 306,106 P. 779.) The facts adduced and heretofore set out fall far short of showing any agreement between these parties.

Again, counsel contends that the defendant rescinded the[6] contract for misrepresentations made. Section 7565, Revised Codes of 1921, provides that "A party to a contract may rescind the same * * * if the consent of the party rescinding, * * * was given by mistake, or obtained through duress, menace, fraud, or undue influence," etc. But "rescission, when not effected by consent, can be accomplished only by the use on the part of the party rescinding, of reasonable diligence to comply with the following rules: 1. He must rescind promptly, upon discovering the facts which entitle him to rescind, if he is free from duress, menace, undue influence, or disability, and is aware of his right to rescind; and 2. He must restore to the other party everything of value which he has received from him under the contract. * * *" (Sec. 7567, Rev. Codes 1921; Turk v.Rudman, 42 Mont. 1, 111 P. 739; Ott v. Pace, 43 Mont. 82,115 P. 37; Hills v. Johnson, 52 Mont. 65, 156 P. 122.)

Defendant made no attempt to rescind the contract for more than two years after he discovered his alleged mistake and plaintiffs' alleged misrepresentations, and then only by his answer in this action. He made no attempt to restore to the plaintiffs anything of value which he had received under the contract, but merely abandoned the premises. More than a year after he discovered that the alleged representations made by the plaintiffs were not in accordance with the facts, without apparent complaint he gave to plaintiffs his promissory note for the interest past due in consideration of being permitted to continue in possession of the land under the contract. Under these circumstances he could not prevail had he shown clearly that misrepresentations inducing the execution of the contract had been made, and, in this connection, the evidence was, to say the least, conflicting.

3. As to whether he was entitled to recover back what he had[7] expended on the premises under the contract would depend upon whether he brought himself within the provisions of section 8658, Revised Codes of 1921, which reads: "Whenever, by the terms of an obligation, a party thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to comply with its provisions, he may be relieved therefrom, upon making full compensation to the other party, except in case of a grossly negligent, willful, or fraudulent breach of duty." Of this section this court has said: "Whatever may be the correct interpretation of the language of that section, this much is apparent: The very minimum requirement is that the party invoking the protection afforded by that section must set forth facts which will appeal to the conscience of a court of equity. `He may be relieved upon a showing that he is equitably entitled to such relief, if his breach of duty was not grossly negligent, willful or fraudulent.' Cook-Reynolds Co. v. Chipman (47 Mont. 289,133 P. 694.) * * * It appears affirmatively that the defendants had possession of the land for more than a year. There was but $637 paid on the purchase price. The value of the use of the premises does not appear; and, even conceding that these are proper subjects of consideration in a case of this character — and upon that we do not express any opinion at all — yet, when all is said by appellant that can be said in its behalf, it failed to make any excuse or to disclose wherein the conscience will be shocked by permitting the plaintiffs to take advantage of the term in the contract which made time of its essence." (Fratt v.Daniels-Jones Co., 47 Mont. 487, 133 P. 700.)

Here time was made of the essence of the contract, and it must be remembered, there was no down payment on the land. The consideration for the contract was but $1, and the only payment made under the terms of the contract was the sum of $193, paid in taxes the first year. Defendant had possession for two years.

As to improvements made upon the land, the general rule is: "Where the purchaser is in default and the vendor exercises his right to terminate the contract and retake possession, he does not thereby * * * incur any liability to reimburse the purchaser on account of improvements erected." (27 R.C.L. 428.)

With reference to relief from forfeiture, the author in Ruling Case Law has this to say: "Where the contract gives the vendor the right to terminate the contract on the failure of the purchaser to make the stipulated payments, it has been held that a court of equity, under its general jurisdiction to relieve against forfeitures, may relieve the purchaser from the forfeiture so incurred, though he has been guilty of a technical default; as in a case where he has paid a large portion of the purchase money; made valuable improvements upon the property, and his default was the result of fraud, accident or mistake, or the vendor should attempt to exercise the power of forfeiture in a case not fairly within its scope. * * *" (27 R.C.L., sec. 430.)

On a contention of this nature each case must be decided on its own facts, and the defendant has not brought himself within the purview of the decision in Cook-Reynolds Co. v. Chipman,supra, nor in Hollingsworth v. Ruckman, 72 Mont. 147,232 P. 180.

In Suburban Homes Co. v. North, 50 Mont. 108, Ann. Cas. 1917C, 81, 145 P. 2, it is said: "The right to recover in such case is an exception to the general rule that the law forfeits to the innocent party all payments made, or the value of acts done, in part performance by the other party, when he stops short and refuses to proceed to the ultimate conclusion."

In Clark v. American Dev. Min. Co., supra, the court quoted from Lawrence v. Miller, 86 N.Y. 131. While the contract under consideration in the Clark Case was an option contract, that in the New York case was a contract for the purchase of real property; the purchaser, having defaulted, sought to recover back money paid on the contract. The supreme court of New York said: "The defendant came by it rightfully, in pursuance of a contract lawfully made, between competent parties. He has made no breach of that contract. He has failed in no duty to the vendee. Wherefore, then, should he give up that which was rightfully his own? When and whereby did it cease to be his and to be due to the vendee? If the contract had been kept by both parties, the money paid would still be his of right. * * * To allow a recovery of this money would be to sustain an action by a party on his own breach of his own contract, which the law does not allow * * *; to declare that a party may violate his agreement, and make an infraction of it by himself a cause of action. That would be ill doctrine."

The showing made in this case is not such as to shock the conscience, in that the court permitted plaintiffs to retain the benefits they had derived from the contract while it was in effect.

4. However, while the plaintiffs cannot be compelled to return[8] to the defendant anything received on the contract, can they recover, after terminating the contract, any payments past due at the time of such termination?

The general rule is that "if the vendor exercises his option to declare the contract at an end, he cannot change his position and thereafter hold the purchaser liable to complete the purchase or pay any part of the unpaid purchase price. The remedy of the vendor by way of cancellation of the contract and the continued liability of the purchaser for the purchase money are totally inconsistent," etc. "This is true as regards the liability of the purchaser for unpaid installments of the purchase money overdue at the time of the vendor's election to terminate the contract." (27 R.C.L. 666.) "In other words, he cannot reclaim the property under a forfeiture clause in the sale contract * * * and at the same time recover any portion of the unpaid sale price." (Blenz v. Fogle, supra.)

It is suggested that there is a difference between seeking to recover for installments on the purchase price and for taxes paid by the vendor and interest past due; but this question has been definitely disposed of in this state contrary to the contention of plaintiffs on this subject. In the case of De Young v.Benepe, 55 Mont. 306, 176 P. 609, the plaintiff sued for goods, wares and merchandise sold and delivered to the defendant; by counterclaim the defendant set up a contract for sale of lands which had been terminated for default, and claimed interest due on the principal note and taxes, as do the plaintiffs in this case. In holding that the court should have sustained the demurrer to the complaint, this court said: "It is manifest that, when the defendant had exercised his option to terminate the * * * contract, as therein provided, it was at an end for all purposes as a binding obligation upon either party, and could not thereafter be made the basis of an action. The result was that the defendant was released from his obligation to make a conveyance of the land, and the plaintiff from his obligation to pay the purchase price, including the interest, and also the taxes for the year 1912. Thereafter the defendant could not be heard to assert that the plaintiff was bound to answer to him for a breach of the contract. He could not oust the plaintiff from the land, as he did, and then claim that plaintiff was indebted to him in any amount."

But counsel for plaintiffs assert that this court announced a different rule in the case of Clark v. American Dev. Min.Co., supra, and quotes, as from that decision, the following language: "`Besides technical rescission, there is a mode of abandoning a contract as a live and enforceable obligation which still entitles the party declaring its abandonment to look to the contract to determine the compensation he may be entitled to under its terms for the breach which gave him the right of abandonment' * * *; `such an abandonment is not technically a rescission of the contract, but is merely an acceptance of the situation which the wrongdoing of the other party has brought about.'" This is not an original declaration of this court, but merely a quotation from Hayes v. City of Nashville, 80 Fed. 641, 26 C.C.A. 59, which was an action for damages for a breach of a contract, wherein special damages were alleged and proved, and, while it was applicable to the point under consideration in the Clark Case, i.e., whether a cancellation of a contract for its breach was a rescission entitling the parties to be placedin statu quo, it is not applicable to the question here considered.

5. Defendant asserts that the trial court committed reversible[9] error in failing to make findings of fact. In this connection counsel has incorporated in the record the following statement: "The trial of the case was commenced March 31, 1923, and tried by the court as an equity case and the jury dismissed. The court took the case under advisement, and the defendant duly submitted before decision the following requested findings of fact." It does not appear from the record whence came the statement; it is not certified as a minute entry of the court, nor, from its face, does it seem that it was a minute entry made by the court. It is not dated, and it does not appear therefrom when the defendant submitted the requested findings, other than that this was done "before decision."

The statute applicable reads: "No judgment shall be reversed on appeal for want of findings at the instance of any party who, at the close of the evidence and argument in the cause, shall not have requested findings in writing, and had such request entered in the minutes of the court." (Sec. 9369, Rev. Codes 1921.) The judgment was not rendered until May 22, 1923, twenty days after the trial, and, for all that appears in the above statement, the request may have been made at any time between March 31 and May 22. The statute above quoted imposed upon defendant the duty of submitting his proposed findings "at the close of the evidence and argument." (State ex rel. Quintin v. Edwards, 40 Mont. 287, 20 Ann. Cas. 239, 106 P. 695.) And in addition to the submission, the legislature has imposed upon the defendant the burden of having the request entered on the minutes of the court, on penalty that his objections shall not be considered unless he "shall * * * have * * * had" the entry made. Such is the wording and meaning of the statute, and this court has, in effect, so held in Bordeaux v. Bordeaux, 43 Mont. 102, 115 P. 25;Hoskins v. Scottish Union etc. Ins. Co., 59 Mont. 50,195 P. 837.

The presumption is that the trial court did not commit error. (Dover Lumber Co. v. Whitcomb, 54 Mont. 141, 168 P. 947.) And the defendant cannot be aided by the presumption that the clerk regularly performed his duty (sec. 10606, subd. 15, Rev. Codes), for to indulge in the presumption that the clerk entered the request, if made at the proper time, in the minutes of the court would be to presume that the trial court erred.

The trial court cannot be put in error for failure to make findings in the absence of an affirmative showing of compliance with the statutory requirements, and no such showing was here made.

6. In view of what has been heretofore said, it is apparent that the trial court erred in overruling the demurrer as to the first cause of action and in entering judgment for the amount claimed therein.

The judgment is reversed and the cause remanded to the district court of the fifteenth judicial district, with directions to modify the judgment herein by striking therefrom the amount of said judgment based upon the first cause of action, and to enter judgment only for the amount awarded upon the second cause of action.

Reversed and remanded.

MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES HOLLOWAY, GALEN and STARK concur.

Rehearing denied June 10, 1925.