Opinion
Max M. Glaston, William F. Reynard, Denver, for plaintiff in error.
Litvak & Litvak, Denver, for defendants in error.
COYTE, Judge.
This case was originally filed in the Supreme Court of the State of Colorado and subsequently transferred to the Court of Appeals under authority vested in the Supreme Court.
The parties will be referred to as they appeared in the trial court wherein plaintiff in error, Jean L. Anderson, was defendant and defendants in error were plaintiffs.
Defendant was the sole stockholder in a corporation known as 'The Hunt, Inc.,' which owned an establishment known as the 'Plush Horse,' located in Littleton, Colorado. On the 11th of February, 1966, defendant contracted to sell the Plush Horse to Premiere Enterprises by transferring her stock in The Hunt, Inc., for $50,000.00. She also agreed to assign a note, evidencing a debt owed to her by the Hunt, Inc., to Premiere Enterprises.
The sale was specifically conditioned on three primary factors: (1) No outstanding indebtedness was owed by the Hunt, Inc., other than the promissory note mentioned; (2) Premiere Enterprises would be able to procure a lease of the premises of the Plush Horse; and (3) Premiere would be able to procure a license to sell liquor.
On February 16, 1966, the contract was modified by an addendum clause, which revised the value of the promissory note mentioned in the original contract. On the same day an escrow agreement was executed by the parties, which provided for immediate occupation of the premises by Premiere Enterprises and further provided that plaintiff corporation would take all necessary steps to obtain a liquor license within 30 days, but that in the event it was unsuccessful, then the proceeds being held in escrow were to be returned to it.
Shortly thereafter, plaintiff corporation signed a lease on the Plush Horse, but the landlord refused to deliver an executed copy because defendant owed $5,500.00 in back rent. Further investigation by plaintiff revealed that other bills were outstanding, including back taxes owed to both the Federal government and the State of Colorado.
The Chief of Police of Littleton recommended denial of the liquor license to Premiere Enterprises because officers of Premiere were also officers of another corporation holding a liquor license. Issuance of a license to Premiere would be in violation of C.R.S.1963, 75--2--15. However, the record discloses that the officers in question had resigned from Premiere Enterprises prior to submission of the application, and consequently, this would not have barred the granting of the license to Premiere.
Premiere elected to rescind and gave defendant notice that it was rescinding the contract and demanded return of the $500.00 down payment, as well as return of the funds being held in escrow.
Upon defendant's failure to accede to these demands, plaintiffs filed suit to confirm their right to rescind the contract. Defendant filed a general denial and affirmatively alleged that all terms of the contract had been completed except issuance of a liquor license, which had not been denied or delayed through any fault of defendant. Defendant caused Max Katchen, Herschel Katchen, and Stephen D. Katchen to be joined as individual plaintiffs and then alleged that they controlled Premiere and had fraudulently misrepresented the status of Premiere Enterprises to defendant's damage.
Trial was to the court, which found in favor of plaintiffs and dismissed defendant's cross-complaint as to the three individuals. We find sufficient evidence in the record to support this finding and judgment.
Defendant contends that the original contract was merged with the escrow agreement and is now controlling. We do not agree. Although related, the instruments were separate in effect. The contract of February 11, 1966, with the addendum clause of February 16, 1966, provided that upon the occurrence of certain conditions, the transaction would be closed. The trial court in ruling on the motion for new trial stated:
'In denying the motion for new trial the court specifically finds that the sale was not fully closed and consummated. By its own terms the contract left certain contingencies which were never performed.'
Where delivery is contemplated as being but one condition of several necessary for completion, delivery is not in itself sufficient to complete the contract and merger is inapplicable. City of Westminster v. Skyline Vista Development Co., 163 Colo. 394, 431 P.2d 26. In the present case, the escrow agreement was but a depository for funds to be dispersed upon completion of the contract, which by its terms contemplated completion only upon obtaining a lease and liquor license.
We find that none of the three primary conditions set forth in the contract was accomplished, and that therefore, by its own terms, the contract was never consummated.
First, the existence of the undisclosed debts constituted a breach of the contract entitling plaintiffs to rescind. Although defendant argues that the indemnification agreement of the contract, which provided in part:
'* * * Buyer agrees to give to Seller notice within ten (10) days of any claim asserted by third parties against the corporation known as THE HUNT, INC., which said claim arose prior to the date of closing. Seller shall pay such claim, or at seller's option resist payment and defend any suit brought by such third parties.'
entitles her to notice of these debts and time in which to repay them, she overlooks the alternative right granted the buyer under the general provisions of the contract which provide:
'3. This agreement constitutes one entire transaction and if the seller fails to perform any of the conditions, warranties, agreements, or covenants hereof, or if any representation made by Seller is not true, such failure, or such untrue representations, shall be deemed a substantial breach, and Buyer, at its option, may refuse to perform its agreement hereunder, or at its option, may refuse to perform its agreement hereunder, or at its option, rescind this agreement and be entitled the repayment of all monies paid hereunder.'
Plaintiff's inability to procure a lease was a failure of the second primary condition upon which the contract was based which, by the terms of the contract, also entitled plaintiff to rescind.
As to the third primary condition, the procurement of a liquor license, defendant argues that plaintiff corporation's failure to make timely application for a license was the reason this primary condition did not occur. Overlooked is the fact that defendant's default in rent prevented plaintiff from obtaining a lease to the premises. Although defendant argues that possession of the premises is not necessary in order to obtain a license, we find such argument completely at odds with the Colorado Liquor Code.
Throughout the Liquor Code it is explicit that one must have possession of the premises either as owner or lessee, in order to hold a liquor license. Where there was a problem relative to obtaining a lease, it would have been futile to make application until a valid lease was secured. Therefore, we find that the third primary condition also failed, entitling plaintiff to rescind.
Judgment affirmed.
DWYER and DUFFORD, JJ., concur.