Opinion
No. 150.
Argued October 30, 1972. —
Decided November 28, 1972.
APPEAL from a judgment of the circuit court for Marinette county: ROBERT J. PARINS, Circuit Judge for the Fourteenth Circuit, Presiding. Reversed.
For the appellants the cause was argued by Roy G. Mita, assistant attorney general, with whom on the brief was Robert W. Warren, attorney general.
For the respondents there was a brief by Cohen, Grant Liebmann and Gregory B. Conway, all of Green Bay, and oral argument by Mr. Conway.
On July 27, 1967, the respondents, Walter and Florence Sutter, executed an option to sell their 160-acre farm located on the top of "Thunder Mountain" near Crivitz, Wisconsin, for $29,000 to the state of Wisconsin (Conservation Commission, now Department of Natural Resources, hereinafter the "state"). The option to purchase provided that the purchase price was "due and payable upon tender of warranty deed immediately after grantee has examined the abstract of title and found marketable title." The option reserved to the grantor "the right of tenancy on the property for one year from date the deed. . ." On September 26, 1967, the state exercised its option in writing, agreeing to purchase the property on the terms and conditions set forth in said option.
Examination of the abstract of title disclosed an outstanding mortgage of approximately $3,000 in favor of the Peshtigo State Bank (hereinafter the "bank") and outstanding real estate taxes for 1967. A deed was drafted by the state and mailed to the Sutters on October 27, 1967, with a request that it be executed by them and returned to Mr. Edward Main, assistant legal counsel for the conservation department. On November 8, 1967, it was agreed that the bank should serve as the escrow agent in closing so that the mortgage could be satisfied as part of the closing.
The evidence indicates that the Sutters appeared at the bank on February 19, 1968, and signed the deed. The only explanation for why there was a delay between November 8, 1967, and February 19, 1968, is the fact that the Sutters had been in Florida. Sometime between February 20th and February 23d, Mr. Main asked for and received the deed from the bank and on February 23, 1968, he caused the deed to be mailed to the Register of Deeds for Marinette county for the purpose of recording.
On March 1, 1968, Mr. Main mailed to the bank a state draft in the amount of $29,000 with an authorization to the bank to disburse from this amount the unpaid mortgage held by the bank. He also gave the bank instructions with respect to recording the satisfaction which he then requested be returned to him. Main further instructed the bank to withhold disbursement of any of the balance of the funds pending authorization from him.
Between February 26th and March 4th various employees of the state inspected the property and on March 4th Mr. Main was informed that there was some question concerning Sutter's cutting timber on the property. On the same day, Main reaffirmed by telephone his instructions to the bank to withhold payment to the Sutters until he gave his express consent.
At approximately this same time, Main requested Marinette county District Attorney Daniel J. Miron to seek an injunction prohibiting Sutter from cutting and removing any more timber from the property. Main was informed by Miron that Mr. Sutter had assured him that there would be no further cutting of any trees, but that they wanted the right to dispose of all of the timber on the property that had already been cut which included recent cuttings, and also those which had been cut prior to the exercise of the option, together with all firewood which had been cut over the past several years.
On or about March 13, 1968, the Sutters consulted with their attorney, Steven Cohen. Attorney Cohen telephoned Mr. Main and the following day Mr. Main confirmed the conversation by letter. The correspondence provided that:
"This letter will confirm our telephone conversation of March 13, 1968. Prior to authorizing release of the purchase price in connection with the above transaction from the Peshtigo State Bank we will require the following items:
"1. An agreement by Mr. Sutter that he is willing to reduce the purchase price by $1,250. This reduction is required because of the timber cutting which Mr. Sutter has done on the property. In connection with this proposal you are referred to section 26.09 of the Wisconsin Statutes.
"2. Mr. Sutter will agree to leave the premises as soon as practicable.
"3. The bank will hold $2,000 in escrow until Mr. Sutter has vacated the premises and we have had sufficient opportunity to inspect the premises and take physical occupancy.
"We would also like to point out to you again that we are willing to immediately authorize satisfaction of the mortgage and release of an additional reasonable amount so Mr. Sutter can complete his Florida transaction."
The Sutters gave notice to the state that they elected to terminate the contract, and commenced suit in equity on June 18, 1969, to have the contract rescinded and to have title to the property quieted in them. The state counterclaimed for an order ejecting the Sutters on the ground that they were in unlawful possession of the property and alternatively for a judgment of specific performance of the option at the agreed upon purchase price, less the cost of timber cut since the date of the option.
In a trial before the court, it was determined that the timber cutting was trifling and did not reduce the value of the land. He also found that plaintiffs had no intention to breach the contract of sale. He concluded that the department's demands for damages, immediate vacancy by plaintiffs and an escrow until vacancy was accomplished were a repudiation of the original contract giving plaintiffs an option to terminate the contract. He ordered the deed canceled and the $29,000 escrow funds returned to the state. From this judgment the state appeals.
Additional facts will be stated in the opinion.
The primary issue presented on this appeal is whether it was error for the trial court to grant the plaintiffs judgment of rescission.
The trial court determined that the letter sent by Main to the Sutters through their attorney on March 13, 1968, was a unilateral attempt on its part to require performance by the Sutters substantially inconsistent and different from the terms and provisions of the original contract.
There is no question that where the vendee of real estate has substantially breached his part of the contract by not providing the required performance pursuant to the conditions of the agreement, that the vendor is entitled to rescission.
Anderson v. Nelson (1968), 38 Wis.2d 509, 516, 157 N.W.2d 655.
Where, however, the vendor has executed his part of the contract, the mere fact that the vendee has failed to perform a promise bargained for under the terms of the contract will not entitle the vendor to rescission.
This rule regarding conveyances executed as to the vendor is set forth in 55 Am. Jur., Vendor and Purchaser, p. 1013, sec. 620, where it is stated:
"The mere failure by a grantee to perform a promise which formed the whole or a part of the consideration inducing an executed conveyance gives rise to no right of rescission in the grantor, either at law or in equity, unless such promise amounts to a condition, and in case the language or intention is doubtful, the promise or obligation of the grantee will be construed to be a covenant, limiting the grantor to an action thereon, and not a condition subsequent with the right to defeat the conveyance. A conveyance of real estate, fully executed on the part of the grantor, cannot be set aside for a failure of consideration, on the sole ground that the promises and agreements which induced its execution, and which by the terms of the contract under which the deed is made were not to be performed until after its execution, have not been performed. Thus, failure to pay the agreed price for a tract of land, or to redeem a promise which constitutes the consideration for the conveyance, furnishes no ground for its cancelation."
Other authorities have likewise given similar statements of this rule, and this court has adhered to it in several very early cases. Mash v. Bloom (1907), 130 Wis. 366, 110 N.W. 203, 110 N.W. 268; Mootz v. Petraschefski (1908), 137 Wis. 315, 323, 118 N.W. 865; Ellis v. The Southwestern Land Co. (1899), 102 Wis. 409, 78 N.W. 583.
2 Black, Rescission and Cancellation (2d ed.), p. 1124, sec. 439: "[I]f the purchaser under an executory contract for the sale of land, upon being called upon to pay the price on the balance thereof, distinctly refuses to do so, the vendor may treat it as a repudiation of the contract, and thereupon rescind it." (Emphasis added.) 91 C.J.S., Vendor and Purchaser, p. 1071, sec. 133b: "If the contract has been executed, the vendor cannot rescind for default in the payment of the purchase money."
Although no recent case from our state can be found on point, the Texas Civil Court of Appeals stated the rule clearly in the case of Rhiddlehoover v. Borden (Tex. Civ. 1953), 260 S.W.2d 431, where at page 434 it is stated that:
"`When the stipulated purchase price has not been paid, a vendor who has given an absolute conveyance, without retaining an express lien, may sue for the debt and enforce an implied lien upon the property as against the original purchase or a subsequent purchaser or encumbrancer with notice. But he is not entitled to rescind the sale and recover the property.'"
The above doctrine is sound. To hold that a vendor of real estate could, for a failure to pay the purchase money, repudiate his deed and recover the land, would render real estate titles dangerously uncertain with ensuing serious consequences.
We hold that the obligation of the state to make payment was in the nature of a covenant, not a condition, and, therefore, the plaintiffs could not reclaim the land itself on account of the nonperformance of the covenant by the state, but would be required to sue for the damages arising from the breach of the contract.
The judgment of the trial court is reversed and the cause remanded with directions to enter judgment on the counterclaim of the state for specific performance of the option at the agreed price, less the cost of timber cut since the date of the option in the amount of $314.68, and less any of the escrow funds applied to the benefit of the Sutters by reduction or satisfaction of the mortgage. Any interest earned on the escrow funds should be allowed to the plaintiffs.
By the Court. — Judgment reversed and cause remanded, with directions to enter judgment not inconsistent with this opinion.