Summary
In Cole, the issues were whether a contract between two parties was an option contract or a contract of sale, and if the latter, whether the buyer had an equitable lien on the property for the return of his down payment upon the seller's failure to make good title.
Summary of this case from Bryan v. the City of MadisonOpinion
No. 38654.
February 9, 1953.
1. Vendor and purchaser — option — executory contract of sale.
Where the assumed owner of described land agreed in writing to convey it to the purchaser by an acceptable title on or before a specified date for a specified sum, part of which was then paid in cash, but the seller was unable to clear the title before the date last mentioned in which event the contract provided that engagement would be void and the down payment returned, such an arrangement constituted an executory contract of sale and not a mere option to purchase, and obligated the seller to repay the down payment.
2. Vendor and purchaser — executory contract of sale — option.
Whether the contract between vendor and purchaser is an option or a bilateral obligation to purchase is to be determined not by the name which the parties have given it but by the nature of the obligations which it imposes and where it appears that the general intention of the parties was to consummate a sale, that intention should be effectuated.
3. Vendor and purchaser — executory contract of sale — lien for purchase money.
The general rule is that a purchaser under an executory contract for the sale and purchase of land is entitled to an equitable lien on the land for the amount he has paid upon the purchase price where the vendor is unable to make a good title, or is otherwise in default.
4. Equity procedure — venue — equitable lien.
Suit to enforce the equitable lien mentioned is properly brought in the chancery court of the county in which the property is located. Sec. 1274, Code 1942.
Headnotes as approved by Ethridge, J.
APPEAL from the chancery court of Holmes County; C.D. WILLIAMS, Chancellor.
Crawley Ford, for appellant.
We submit that by virtue of the terms and provisions of the contract and agreement entered into by the appellant and appellee, which is shown as Exhibit One to the original bill of complaint, the said instrument is a contract and the relationship of the appellant and appellee was that of vendee and vendor, respectively, and because the vendee, T.C. Cole, the appellant herein, paid money upon a contract for the purchase of land, which was rescinded on account of the default of the vendor, A.P. Haynes, the appellee herein, the said vendee, T.C. Cole, the appellant herein, has an equitable lien on the lands described in the original bill of complaint for the reimbursement of the money advanced upon the said contract. It is generally held that the nature of a contract as an option or obligation to purchase is to be determined not by the name which the parties have given it, but by the nature of the obligations which it embodies, and a contract has been held to be a contract of sale even where it was styled by the parties themselves an option. 55 Am. Jur., Vendor and Purchaser, Sec. 28. It has been held that a provision that the deposit received by the vendor is to be forfeited if default is made by the purchaser in carrying out the contract does not make the transaction a sale of an option merely. 55 Am. Jur., Vendor and Purchaser, Sec. 29. The fact that a contract does not formally bind a party to make payment has not been regarded as conclusive of its character. To constitute an executory contract as distinguished from an option, the agreement need not in express terms state that the vendor has agreed to sell and the purchaser to buy. The law seems to be that although the contract does not expressly provide that the vendee agrees to consummate the sale by paying the balance and accepting the deed, yet where it appears that the general intention was to consummate a sale, the absence of an express agreement does not limit the contract merely to one of option but it will be held to be a contract of purchase and sale. Thus, a memorandum stating that the one party has "purchased" certain land on certain terms and has paid thereon a certain sum evidences a contract for the sale of the land and not a mere option in favor of the purchaser; and the same is held true as to a contract stating that the vendor has agreed to sell, as this also implies a promise on the part of the purchaser to buy. 55 Am. Jur., Vendor and Purchaser, Sec. 30. 55 Am. Jur., Vendor and Purchaser, Sec. 32, provides: "The fact that the down payment constitutes a substantial portion of the sum for which the owner agrees to sell, while not conclusive, goes to show that the parties had in contemplation something more than a mere option, and the fact that the payment made is on account and is part of the purchase price is expressive of an intention to make a contract for the sale of the property, and not merely a contract for a contract." Applying the aforesaid tests of a contract to the contract and agreement entered into by and between the complainant and the defendant, it is evident that the deposit of Three Thousand Two Hundred and Fifty ($3,250.00) Dollars received by A.P. Haynes would have been forfeited if the said A.P. Haynes had been able to deliver to the said T.C. Cole a fee simple title in and to the lands within the time prescribed by the said contract and agreement. Not only is this result implied from the contract and agreement but the Supreme Court of Mississippi in the case of Vanlandingham v. Jenkins, 43 So.2d 578, has held that under such circumstances the said earnest money could not be recovered unless there is an unwillingness or inability of the vendor to convey according to contract, or a mutual abandonment of the contract. In the case at bar, the second paragraph of the contract and agreement entered into by and between the parties recites that the party of the first part is desirous of selling, conveying and warranting unto the said party of the second part all of the lands and property therein described, and paragraph three of said contract recites that the said second party is desirous of purchasing real property and the personal property therein described. Moreover, the recitals of the contract and agreement show that the party of the first part obligated, agreed and bound himself to sell, convey and warrant unto the said second party for the cash consideration of $10,000.00 and other good and valuable consideration, said $3,250.00 to be credited against the purchase price, all of the lands and personal property described in said contract and agreement. Moreover, the last paragraph of the said contract and agreement entered into by and between the appellant and appellee and attached as Exhibit One to the bill of complaint recites: "It is further understood and agreed by and between the parties hereto that if any commission shall be paid to any broker, real estate agent or any person whatsoever on account of the sale of the property hereinabove described, the party of the first part is to pay said commission and the said first party is to indemnify and save harmless the said party of the second part on account of any claim that may be made for such commission." The aforesaid provision shows that the parties had in contemplation something more than a mere option and that the appellant and complainant considered that he had entered into an agreement for the purchase of the said lands, provided that a fee simple title could be delivered to him. Moreover, the advance payment of Three Thousand Two Hundred and Fifty ($3,250.00) Dollars constituted a substantial portion of the sum for which the owner agreed to sell and this goes to show that the parties had in contemplation something more than a mere option and was expressive of an intention to make a contract for the sale of the property and not merely a contract for a contract. The language of the contract may reasonably be construed as an agreement on the part of the appellant and complainant to purchase the property if a fee simple title could be delivered to him, or to assume the obligation of having the said Three Thousand Two Hundred and Fifty ($3,250.00) Dollars retained by the appellee and defendant as liquidated damages if the said appellant and complainant did not accept the fee simple title when tendered to him. Accordingly, there was an agreement of sale and purchase inasmuch as it appeared that the general intention was to consummate a sale. 55 Am. Jur., Vendor and Purchaser, Sec. 30. This intention to consummate a sale is further reflected by the actions of the appellant and complainant as shown by the allegations appearing in paragraph 15 of the bill of complaint. In the aforesaid paragraph of the bill of complaint, the complainant and appellant alleges that he went to Greenwood, Mississippi, on the 26th day of January, 1952, to advise the defendant of the defects in the title and to request that the said defects and objections be removed and eliminated; that the said defendant, A.P. Haynes, was successful in removing a cloud on practically all of the timber on the above described lands which was cast by the State of Mississippi but failed to remove and eliminate the other defects in and to the title of the said lands; that the said complainant informed the defendant on the 26th day of January, 1952, that these objections and defects would have to be eliminated by 6:00 o'clock P.M. on 1 February, 1952. The aforesaid actions of the appellant and complainant reveal that he considered that he was obligated to purchase the said lands if a fee simple title could be delivered, and if a fee simple title could have been delivered by the appellee and defendant within the time prescribed by the contract and agreement, the appellant and complainant would no doubt have been bound to accept the said deed and to pay the purchase price agreed upon. Sec. 90 of Restatement of the law, American Law Institute, Contracts. Wolfle v. Daugherty, 137 So. 717; Vanlandingham v. Jenkins, 43 So.2d 578.
An elaborate annotation appears in 3 A.L.R. 576, dealing with the characteristics of options and contracts of purchase, and we shall cite therefrom the cases which set forth the tests of a contract which are met by Exhibit one to the bill of complaint in the case at bar. Simonson v. Kissick, 4 Daly (N.Y.) 143; Golden v. Lewis, 176 Ky. 28, 195 S.W. 144; Libby v. Parry, (Minn.), 108 N.W. 299; Davis v. Martin, 146 N.C. 281, 59 S.E. 700; Newton v. Dixon, 53 Tex. Civ. App. 429, 116 S.W. 143; Wright v. Suydam, 72 Wn. 587, 131 P. 239; Mound Mines Co. v. Hawthorne, 97 C.C.A. 394, 173 Fed. 882.
Another annotation appears in 87 A.L.R. 563 dealing with the characteristics of options and contracts of purchase, and we shall cite therefrom the cases which set forth tests of a contract which are met by Exhibit One to the bill of complainant in the case at bar. Asia Invest. Co. v. Levin, 118 Wn. 620, 204 P. 808, 32 A.L.R. 578; Wolfle v. Daugherty, 103 Fla. 432, 137 So. 717; Barnett v. Meisterling, 327 Ill. 564, 158 N.E. 806; McIntosh v. Hopkins, 255 Mich. 493, 238 N.W. 198; Padula v. Kimishane, 104 N.J. Eq. 409, 146 A. 200; Ruland v. Bohner, 149 Okla. 36, 299 P. 167.
Means Johnston and J.J. Fraiser, Jr., and Johnson White, for appellee.
The contract entered into by and between appellant and appellee was an option contract and such contract created only rights in personam and a breach thereof by appellee would not create an equitable lien on the property described in said contract but would only give rise to a right of action by appellant at law for breach of said contract.
In the Chapter on Vendor and Purchaser in 55 Am. Jur., 496, Sec. 29, the distinction between a contract to purchase and sell real estate and an option to purchase is shown to be as follows: "The distinction between a contract to purchase and sell real estate and an option to purchase is that the contract to purchase and sell creates a mutual obligation on the one party to sell and on the other to purchase, while an option merely gives the right to purchase within a limited time without imposing any obligation to purchase. An agreement by which a party is bound absolutely to purchase land is not an option, but an agreement of purchase and sale. Accordingly, an agreement by which a party binds himself unconditionally to pay the purchase price is often, for that reason, held to be a contract to purchase. The distinguishing characteristic of an option contract is that it imposes no binding obligation upon the person holding the option. An option creates no enforceable indebtedness on the part of the person to whom it is granted. Unless, therefore, the contract contains language which may reasonably be construed as an agreement on the part of the vendee to purchase the property, or to assume some obligation thereunder, it is an option contract and not an agreement of sale and purchase."
The option contract and agreement upon which the present cause of action is based is not only styled "Option Contract and Agreement", but shows on its face that it imposes no binding obligation upon the appellant, T.C. Cole, to purchase the property described therein on or before the expiration date thereof, and specifically states that said sale would be completed at "his the said second party's (appellant's) option". In the case of Keogh v. Peck, 316 Ill. 318, 147 N.E. 266, 38 A.L.R. 1151, and the case of Barnett v. Meisterling, 327 Ill. 564, 158 N.E. 806, the same being cited in 87 A.L.R. 567, the following distinction is drawn between option contracts and contracts for the sale of lands and agreements to sell lands: "An `option' contract differs from a `sale of lands' and an `agreement to sell lands'. A sale of land is the actual transfer of title from grantor to grantee by an appropriate instrument of conveyance. An agreement to sell lands is a contract to be performed in the future, and, if fulfilled, results in a sale. An option, originally, is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a time certain. The owner does not then sell his land or any interest in it. He does not then agree to sell it, but he does then sell the right or privilege to buy at the election or option of the other party. The second party gets, in praesenti, not lands or an interest therein, or an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. A present conveyance of land is an executed contract. An agreement to sell is an executory contract. The sale of an option is an executed contract. The lands, or an interest therein, are not sold. The contract is not executed as to them, but the option is as completely sold and transferred in praesenti as a piece of personal property instantly delivered upon payment of the price."
In examining the option contract and agreement executed upon which the present cause of action is based, it is noteworthy that the party of the first part, who is the appellee in this Court, is the only party bound thereby, and that the consideration for the covenants and agreements on the part of the party of the first part (appellee) was the sum of $3,250.00. Hanscom v. Blanchard, 117 Me. 501, 105 A. 251; Kingsley v. Cresley, 60 Oregon 167, 111 P. 385, 118 P. 678; Fields v. Vizzard Investment Co., 168 Ky. 744, 182 S.W. 934.
In the option contract and agreement in the case at bar it is apparent that the appellant never intended to bind himself to purchase the property described therein, for none of the terms and stipulations contained in said instrument show any intention on the part of the appellant to so bind himself. The instrument does show that the appellee bound himself to sell and convey the property described in said instrument to appellant for the sum of $10,000.00 and to further convey to appellant a fee simple title in and to the property described in said instrument should the appellant desire to purchase the same and conclude a sale of said property by February 1, 1952, but these binding obligations of the appellee cannot be used as a basis for construing the contract to be a contract for the purchase of said property, since the very purpose of an option contract is to bind the owner to sell and convey the property for a specified consideration and to grant unto the optionee a specified time in which to purchase the same. Such a contract and agreement as heretofore shown creates rights in personam and since the optionee receives not lands or an interest therein it cannot be held nor is it contended by appellant that such a contract creates an equitable lien on the property described therein for the repayment to the optionee of the consideration therefor in the event the optionor fails to comply with the terms and stipulations provided therein.
A study of the many cases cited by appellant in his brief as authority for his contention that the present option contract and agreement is a contract of sale of the property therein described reveals that the contracts before the various courts in each of said cases imposed mutual obligations on both parties, and in each of said cases the purchaser was bound by the contract to purchase the property described therein. None of the cases cited by appellant as authority for his contention involved a contract whereby an optionee had a mere right but not an obligation to buy the property.
The principal questions are whether the contract between the parties is an option or contract of sale, and if the latter, whether a vendee in an executory contract of sale of land has an equitable lien on that land for the return of his down-payment, upon the failure of the seller to make a good title. This is an appeal from a decree of the Chancery Court of Holmes County sustaining the general demurrer of appellee, defendant below, A.P. Haynes, to the bill of complaint of appellant, complainant below, T.C. Cole. An appeal was allowed to settle controlling questions of law. Hence for present purposes we must assume the averments of the bill to be correct.
On December 26, 1951, Cole and Haynes executed an "Option Contract and Agreement," under which Haynes, a resident of Greenwood in Leflore County, agreed to sell Cole a 586-acre farm in Holmes County, together with certain personal property, for a stated consideration of $10,000.00. Cole was to pay that amount to Haynes on or before 6 P.M. February 1, 1952, at which time Haynes would execute to Cole a general warranty deed conveying to Cole a fee simple title or such title as may be acceptable to Cole. Cole paid Haynes upon execution of the contract $3,250.00, and Haynes obligated himself to make the stated conveyance on or before the stated date. It was agreed that if Haynes was not able to convey to Cole a fee simple or other title acceptable to Cole by February 1, 1952, then the contract would be void and Haynes would repay to Cole the $3,250.00. The instrument provided that the covenants and agreements should bind and inure to the benefit of the heirs, personal representatives and assignees of both parties. The transaction was referred to as a "sale" and reference was made to "the purchase price."
Haynes was unable to clear title to the property by February 1, 1952. There were substantial outstanding and adverse mineral interests owned by other persons, an outstanding deed of trust on part of the property, and other material defects in the title at that time. Previously on January 26, 1952, Cole had advised Haynes that the title defects would have to be cleared up in time, and on February 1st an attorney representing Haynes advised Cole's attorney that he had cleared up the title to timber on the lands, but that he was not able to eliminate other defects. Thereupon Cole's attorney advised the defendant's counsel that if Haynes could convey a fee simple title by 6 P.M., February 1, 1952, Cole would accept the deed and pay the balance of the purchase price, but that failure to do so Cole would expect repayment of his $3,250.00. Haynes made no further effort to obtain and convey to Cole a fee simple title, but refused to repay Cole the $3,250.00, contending that it was consideration for an option, or that it was liquidated damages for Cole's failure to complete the purchase. The bill charged that Haynes had taken this sum paid him by Cole and used it for payment of an outstanding indebtedness on this property.
The bill of complaint asked the court to construe the contract of December 26, 1951, between Cole and Haynes, to adjudicate whether defendant Haynes could convey a fee simple title, to relieve complainant from the asserted penalty and forfeiture, and to affix a lien upon the land of Haynes for the repayment to complainant Cole of the down-payment of $3,250.00.
Appellee filed a general demurrer to this bill, asserting that it had no equity, that complainant had a full, adequate and complete remedy in a court of law, and that the Chancery Court of Holmes County had no jurisdiction of the parties or of the subject matter. The decree sustained this demurrer, erroneously, we think.
We will not quote at length from the contract of December 26, 1951, between Cole and Haynes. Its substantial terms have been outlined above. (Hn 1) We are satisfied that this instrument evidences the intent of the parties to create an executory contract binding on both parties for the sale of the land; and that under its terms if appellee was unable to make a good title on February 1, 1952, the contract was thereby rescinded and appellee was obligated to repay to appellant the down-payment made by appellant. Appellee was unable to make good title, so under this contract he is obligated to repay appellant. (Hn 2) Whether the nature of a contract is an option or a bilateral obligation to purchase is to be determined not by the name which the parties have given it, but by the nature of the obligations which it imposes. Where it appears that the general intention of the parties was to consummate a sale, that intention should be effectuated. The entire present instrument indicates that the parties thought that this was a contract to purchase and sell, creating mutual obligations on both parties. 55 Am. Jur., Vendor and Purchaser, Secs. 27-30; Anno. 3 A.L.R. 576; Anno. 87 A.L.R. 563. The only reference to an exception in the vendee lies in the fourth to the last paragraph, in which the vendee may at his option obtain a deed to the property before the deadline of February 1st. This apparently was designed to give Cole the privilege of obtaining his deed before that date if he was satisfied with the title. It did not relieve him from his obligation to purchase.
Appellee argues, however, that even if he has a duty to refund to appellant the amount of the down-payment, still appellant's right is solely in personam; that appellant must therefore sue appellee in the county of appellee's residence; and that appellant therefore cannot bring a suit in equity in Holmes County where the land is located, seeking to impose an equitable lien on the land. However, established principles of justice and law indicate a different conclusion. 55 Am. Jur., Vendor and Purchaser, Section 548, states that (Hn 3) the general rule is that a purchaser under an executory contract for the sale and purchase of land is entitled to an equitable lien upon the land for the amount which he has paid upon the purchase price, where the vendor is in default or unable to make a good title. Sec. 549 says this with reference to the nature and basis of the lien:
"The lien of a purchaser of land under an executory contract for the amount which he has paid is to secure to him the repayment of expenditures made in pursuance of the contract. The exact nature of this lien is not clear. The doctrine has been quite generally applied without any discussion as to the nature of the lien, except, perhaps, the statement in general terms that it was an equitable lien, very similar to that of a vendor for unpaid purchase money. It has been said that the basis of the lien is the well-known fundamental rule that in equity what is agreed to be done is regarded as done, so that from the time that a contract is made for the purchase of real estate, the vendor is, in a sense, a trustee for the purchaser, and the purchaser in a sense is the real owner of the land, so that each, under the ordinary equitable rules, has a lien for his protection. The whole practice in equity with reference to such contracts is clearly on the basis that the parties are under equal equitable obligations to each other. It has also been said that all the reasoning by which the vendor's equitable lien for the purchase money after a conveyance is established is applicable in support of the vendee's lien after full or part payment and before conveyance, and that it is difficult to imagine upon what principle a court of equity could enforce the one and deny the other."
To the same effect are 66 C.J., Vendor and Purchaser, Secs. 1583-1587, pages 1495-1501; Anno. Right of Vendee under an Executory Land Contract to a Lien for Amount paid on the Purchase Price, 45 A.L.R. 352 (1926). In Davis v. Heard, 44 Miss. 50 (1870), a vendee filed a bill in chancery seeking damages, an injunction restraining transfer by the vendor of the remaining promissory notes he had given, and for a lien on the land for the purchase money advanced. In affirming a decree for the complainant which gave him a lien on the lands, it was held that "the natural equity and intrinsic justice of this lien commend it to the favorable consideration of a court of chancery," and that the complainant vendee, upon default by the vendor, "has an equitable lien on the land for the reimbursement of the money advanced upon it, similar to that of the vendor for unpaid purchase money." The principles stated in the foregoing authorities are sound and warrant the recognition here of such an equitable lien in appellant.
(Hn 4) That being true, appellant had the right to bring this suit in the chancery court of the county in which the property is located. Code of 1942, Sec. 1274; Griffith, Miss. Chancery Practice (2d ed. 1950), Secs. 151-154. For these reasons this case is reversed and remanded for further proceedings not inconsistent with this opinion.
Reversed and remanded.
Roberds, P.J., and Kyle, Arrington and Lotterhos, JJ., concur.