Case ID: ky_94/html/0533-01.html
Source: Caselaw Access Project
Author: {"author": "JUDGE LEWIS", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Case 93 — PETITION EQUITY —
    September 14.
    Peak, &c., v. Gore.
    APPEAL FROM BOYLE CIRCUIT COURT.
    1. Vendor and Vendee — Eraud.—When the purchaser of real estate has made his purchase after having time and opportunity to ascertain for himself the value of the property, and after he has in fact examined it, commendation or even false representation of its value by the vendor does not afford ground for rescission.
    2. Same — Undisclosed Liens — Eescission.—Ordinarily a vendee can not be prejudiced by reason of prior liens on the property purchased if for less amount than unpaid purchase money past due by him, but where a vendor who has covenanted to mate “a good and legal title,”’ upon payment of first installment of purchase money, accepts the payment of that installment and makes a deed without clearing the property of an existing incumbrance, as his contract to make “ a good and legal title” bound him to do, and without disclosing the existence of the incumbrance, the vendee, not being in default, is entitled to a rescission, if by reason of the insolvency of the vendor and the amount of the prior liens he is in danger of losing the property by enforced sale, although the unpaid installments of purchase money not yet due may amount to more than the prior liens upon the property.
    BOBEET HAEDING and GEOEGE DAVISON eor appellant.
    The appellant is entitled to a rescission because of the false representations as to value and the concealment of the existence of incumbrances, appellee having represented that he would make a good and clear title to said property, “ free from liens and mortgages,” and covenanted to “ execute a good and legal title.”
    BRECKINRIDGE & McFERRAN fob appellee GORE.
    1. The false representations as to value, if any, do not afford ground for a rescission, appellant having an opportunity to know the value of the property.
    2. Appellant had knowledge of the existence of the incumbrances, but even if she did not, she is indebted to appellee Gore in a sum more than double the amount of the incumbrances, and, therefore, can not complain.
   JUDGE LEWIS

DELIVERED THE OPINION OF THE COURT.

November 18, 1887, James Core sold to Amanda Peak and E. C. Montgomery, a lot of land in Junction City, on which was the “Core Hotel,” and furniture, for ten thousand dollars, and as evidence of the sale, a written contract was entered into and signed by the parties. By its terms Core agreed to make to them “a good and legal title,” upon payment of one-third the purchase price and execution of two notes each for one-half the residue, bearing interest at the rate of eight per cent, per annum, and payable in one and two years from the last of March, 1888, when the cash payment was to be paid and notes given. It was agreed they were to have possession of the property and it was delivered in December, 1887, but to pay rent therefor at the rate of sixty dollars per month until the cash payment was made and notes executed, and also to board Core and his brother during the same 'period free of charge. March 20, 1888, Mrs. Peak sold and conveyed to Core a tract of fifty acres of land for about three thousand seven hundred dollars, of which three thousand three hundred and thirty-three dollars and thirty-three cents was used to make the cash payment for the hotel property, and for the residue, G-ore gave her his promissory note that she sold, and proceeds of it were used to buy hotel supplies.

This action was brought September 8, 1888, by Mrs. Peak, for rescission of the contracts of sale and purchase of the hotel property and the tract of land, for restoration to her of the tract of land and cancellation of the two notes given for balance of the ten thousand dollars. Montgomery was made defendant to the action; but in his answer, made cross-petition against Gore, the same relief was prayed for as asked in the petition. The lower court, however, dismissed both petition and cross-petition without giving any relief at all.

The evidence makes it too plain for controversy that the hotel property for which appellants agreed to pay ten thousand dollars, was not at the time, nor is now ..worth half that sum. Indeed, only one of nine witnesses who, having knowledge on the subject, testify as to its value, say it was or is worth as much as five thousand dollars, the value as fixed by the others being from two thousand dollars to four thousand dollars, so that in view of the fact her son-in-law and co-purchaser, E. C. Montgomery,is insolvent and unable to pay any part of the purchase price, the bargain is a very hard one for Mrs. Peak, who is a widow. But the relief prayed for could not be granted-for that reason alone.

It is stated in the petition, and also sworn to by Mrs. Peak and Montgomery as witnesses, that pending negotiation about the trade and also at the time the contract was reduced to writing, Gore, as an inducement for- them to purchase the property, stated it was worth and he had been offered for it ten thousand dollars, and that its earning capacity was from twenty-five dollars to fifty dollars per day. He practically admits making the statement as to its value,' and though not as distinctly confessing he made the other alleged statement, it is evident to us from the manner in which his testimony is given, that he did do so. And as Mrs. Peak had at the time no experience or knowledge in regard to the value or earning capacity of hotel property, and Montgomery very little if any more, it is manifest the representations of Gore unduly influenced them to make the purchase, which they both testify neither had previously any intention to do. This, therefore, seems to us from all the circumstances, to be the case of persons-without practical knowledge or experience of the value or management of particular property, being allowed to buy and pay an exorbitant price for it by representations of the owner, known by bim to be untrue. But as they purchased after having time and opportunity to ascertain for themselves value of the property, and did in fact examine it, commendation or even false representation of its value by Gore-can not, according to a settled rule, afford ground for rescission.

There, however, existed when the contract was made, mortgage liens upon the hotel property for near, if not quite, three thousand5 dollars, which it is alleged in the petition and cross-petition, Gore fraudulently concealed from ■ them, and of' which they continued ignorant until June, 1888, when first informed in regard thereto. Gore denies he concealed existence of the liens, or stated to them, as they allege, that the property was unincumbered.

But it is evident they were misled and deceived ón that subject by him; for how could he, as he-covenanted in the contract of November, 1887, make them a good and legal title, which is equivalent to- and means a title to property clear of claims and liens of others, if there were existing mortgages that-he had made no provision to satisfy, and, as now appears, did not design to satisfy prior to or even when the deed was to be executed and delivered by him; for although he sold the tract of land shortly after Mrs. Peak conveyed it to him in payment of the first installment of purchase price of the hotel property, no part of the proceeds, except about two hundred dollars, was applied to pay the mortgage debts, and so far as the record shows, they had not been paid' even when the judgment appealed from was rendered; and in view of the alleged and undisputed fact that Gore was insolvent, it is not at all reasonable Mrs. Peak would have conveyed to him her own land, executed the two notes, and accepted his deed without an assurance and belief the hotel property was free of incumbrance.

But, waving the question of fraud, the case seems to us to stand thus: Gore had the right to insist' upon complete performance of the contract on the part of Mrs. Peak and Montgomery, which consisted in paying .deferred installments when they fell due, and they consequently were without right to a rescission, provided there has been no breach or failure on his part whereby they were materially prejudiced.

Ordinarily a vendee could not be prejudiced by reason of prior liens on property purchased, if for less amount than unpaid purchase money past due by him, nor have a right to complain of the property being subjected and sold on account of his own •default. But in this case, Mrs. Peak and Montgomery had not defaulted in paying the unpaid installments of purchase money, none of which was due until March, 1889, nor failed to comply with their part of the contract in-any respect. But Gore had failed to clear the property of incumbrance before the first installment of purchase money was paid, and the deed was made and delivered as he was bound to do. And, as a consequence of such failure, there existed when this action was commenced, mortgage debts amounting, it is true, to not as much .as the unpaid installments of purchase money, but to nearly if not quite as much as the evidence shows the hotel property was worth; and if added to the •cash payment made by Mrs. Peak in March, 1888, the aggregate amount would be double the value of the property. So that Gore being insolvent, and his ■creditors having the right to enforce their mortgage liens on the hotel property at any time, Mrs. Peak, without fault of herself or Montgomery, but by reason ■of a breach of the contract by Gore, was put in danger of not only losing by enforced sale the hotel property, but also the tract of land conveyed by her in payment of the first installment of purchase money. The question in this case is, therefore, not whether the unpaid installments of purchase money equaled in amount the mortgage debts that it was the duty of Gore to pay off before receiving any part of the purchase price, or undertaking to convey the property, but it is whether he did, in March, 1888, make such conveyance of the property as he had covenanted to then make. The deed made by him certainly did not convey a “good and legal title;” nor has he since tendered such deed. Moreover, the evidence shows him to be by reason of insolvency unable to discharge the mortgage liens, which is indispensable in order to full compliance with his contract.

In our opinion the purchasers of the hotel property were clearly entitled to a rescission of the contract when this action was commenced, and the lower court erred in dismissing it. Instead, a judgment ought to have been rendered, rescinding the contract of sale and purchase of the hotel property, canceling the unpaid purchase money notes, and restoring the parties in other respects to their original status so far as can be done equitably and without prejudice to the rights of others; and the judgment is reversed, and cause remanded for proceedings consistent with this opinion.