Case Title: Agnew v. Landers

Citation: 278 P.2d 970, 59 N.M. 54

Docket Number: 

State: new-mexico

Court: New Mexico Supreme Court

Date: 1955-01-11T00:00:00Z

Document:
278 P.2d 970 (1954) 59 N.M. 54 Samuel C. AGNEW and Margia A. Agnew, his wife, Plaintiffs-Appellees, v. G.V. LANDERS and Marie W. Landers, his wife, Defendants-Appellants. No. 5743. Supreme Court of New Mexico. November 22, 1954. Dissenting Opinion January 11, 1955. Rehearing Denied January 12, 1955. *971 Albert R. Kool, Albuquerque, for appellants. K. Gill Shaffer, Albuquerque, for appellees. LUJAN, Justice. This is an action to rescind a certain warranty deed, issued and delivered by the plaintiffs to defendants for real property known as the Casa Loma Lodge, situated in Bernalillo County, on account of alleged fraudulent representations, and to recover certain special damages. In negotiating the sale of the Apache Lodge here involved, the defendant G.V. Landers and his agent, F.L. Pinkston, represented to the plaintiffs the following: (1) That the income from said lodge would be approximately $2,000 per month during the summer and approximately $1,200 per month during the winter; (2) that the First National Bank of Albuquerque, New Mexico, held a first mortgage on said property in the sum of $77,000; (3) that a collateral security was a better proposition than a second mortgage; (4) that W.R. Beeble was a man of considerable experience and financial means and reliable. These statements were false and fraudulent, and made for the purpose, and with the intent, of inducing plaintiffs to enter into the contract of sale. Plaintiffs believed these representations to be true, relied on them, and were induced thereby to enter a contract to purchase the property which was executed on September 20, 1949. The case was tried to the court. It resolved the issues in favor of the plaintiffs (appellees) and the defendants (appellants) have perfected this appeal. The defendants assign numerous errors alleged to have been committed by the trial court. Their major contentions are that (1) there is no substantial evidence to support the court's findings that defendant Landers and his agent Pinkston made false representations or fraudulently withheld facts; (2) the evidence establishes that the plaintiffs did not rely on the alleged representations and were not entitled to rely thereon; (3) there is no substantial evidence that plaintiffs were damaged by the alleged misrepresentations; (4) the parties cannot be placed in status quo due to delay of plaintiffs in taking action to rescind after full knowledge of all facts; (5) the court's conclusions of law are not supported by its findings or substantial evidence. The defendants are confronted with the substantial evidence rule. It is a difficult obstacle in their path. As to the income the Apache Lodge would produce the plaintiff, Samuel C. Agnew, testified as follows: On cross-examination he testified: The record disclosed the following income taken in by the Apache Lodge for eight months subsequent to the transaction and before the plaintiffs gained knowledge of the true state of affairs. As to the First National Bank of Albuquerque, New Mexico, being the holder of a first mortgage on the Apache Lodge the plaintiffs testified as follows: Mrs. Agnew testified as follows: On January 16, 1950, Mr. Agnew wrote Mr. Clyde Hill, Vice-President of The First National Bank of Albuquerque, New Mexico, a letter, the pertinent part of which reads as follows: On January 23, 1950, Mr. Hill replied as follows: As to the representations that a collateral security was better than a second mortgage Mr. Agnew testified as follows: As to the representations that W.R. Beeble was an experienced auto court operator, a man of financial means and reliable, Mr. Agnew testified: Mrs. Agnew testified as follows: As to the concealment of important facts concerning the true situation of the Apache Lodge, Mr. Agnew testified as follows: It was understood by both parties that upon the conveyance of the Casa Loma Lodge to defendant Landers he would endorse the $23,000 Beeble note held by him to the said Agnew and also assign the collateral security thereto. What transpired at the time the deal was closed is better reflected by the testimony of Mr. and Mrs. Agnew. Mr. Agnew testified: Mrs. Agnew testified as follows: As to the reliance placed upon the representations made to him by the defendant Landers and his agent Pinkston, Mr. Agnew testified as follows: At the conclusion of the trial the court found several findings of fact, among them the following: *977 The Court concluded: The Court made the above findings of fact based on its belief in the testimony of the plaintiffs. We are bound by the trial court's findings of fact when supported by substantial evidence. Taylor v. Sarracino, 44 N.M. 469, 104 P.2d 742. In substance the trial court found four separate false representations which were made by defendants; they are: (1) As to monthly income from the Apache Lodge; (2) as to the financial status and business experience of W.R. Beeble; (3) as to the comparative worth as security of a collateral assignment of real estate contract and of a second mortgage; and (4) by fraudulently concealing the true state of the title which consisted of a multitude of pyramided executory sales contracts upon which a total indebtedness of $77,000 was due to several different creditors instead of a single mortgage approximating $77,000 held by a single creditor, First National Bank in Albuquerque. The trial court based its judgment upon all of these alleged false representations. In our judgment, for reasons which we shall state briefly, the findings as to the first three of these representations will not suffice to sustain the judgment. The first representations as to monthly income was clearly stated by defendants as constituting their understanding of the facts from the prior operators of the Apache Lodge. The testimony is explicit to the effect that defendants never operated the lodge nor saw the books. Plaintiffs had no right to accept these statements as representations of facts known to defendants when defendants clearly disclosed the source and reliability of the facts stated. Hartzell v. Jackson, 1937, 41 N.M. 700, 73 P.2d 820. The second representation as to the financial status and experience of Beeble is not actionable as fraud because it is unsupported by any substantial evidence. At no point in the record was there any evidence that Beeble was not financially strong and was not an experienced operator of tourist courts. With reference to the third misrepresentation concerning the comparative value as security of a second mortgage and of an assignment of a real estate contract, the authorities seem reasonably uniform to the effect that a misrepresentation of the law cannot constitute actionable fraud. This conclusion is sometimes based upon the theory that fraud cannot be predicated upon the expression of an opinion. We feel that this representation in the instant case is not actionable. 37 C.J.S., Fraud, § 55, Representations of Law, page 323. Findings of fact 5 and 6 of the trial court cover the fourth misrepresentation upon which the trial court relied. It is comprised of a concealment by defendants of the true and confused state of the title of the Apache Lodge and the specific misrepresentation of an existing fact, namely, that the indebtedness of $77,000 against this property was represented by a mortgage in the amount held by the First National Bank. We quote again a question and answer made at trial in this connection. Mr. Agnew was the witness: *978 In this fourth misrepresentation we find actionable fraud which will sustain the judgment of the trial court. It is true that there is no testimony as to the actual value of the Apache Lodge; however, aside from the question of whether or not $77,000 was more than the First National Bank would have loaned on this property, Mr. Agnew from this fact would be entitled to assume that the status of the security for a loan of that size would be carefully examined by the banking institution prior to the consummation of a loan; he was further entitled to assume that in the event of financial tightness in meeting the $800 monthly payments on this note and mortgage, he would have but one person or institution with which to negotiate for time or for a reduction in installments. The testimony is clear that plaintiffs relied upon this misrepresented fact in consummating their trade. The good faith of plaintiffs in their reliance is established by their letter of January 16, 1950 addressed to the vice-president of the bank asking for information concerning the mortgage, which letter was answered on January 23, 1950 by the vice-president, as heretofore quoted in this opinion. It seems difficult to question the fact that plaintiffs suffered severe damages which flowed at least in part from this misrepresentation. The literal result of this transaction was that plaintiffs gave to Landers a $25,000 piece of property and received for it from Landers $2,500. The greatest obstacle in the way of recovery for plaintiffs in this case is the contention made by defendants that plaintiffs' delay in exercising their right of rescission deprives them of that right, both on the theory that they affirmed the transaction after knowledge of the fraud and that, by their delay, it became impossible for them to place defendants in status quo. It is true that the suit seeking rescission was not filed until July 20, 1950, even though they were apprised of the nonexistence of the first mortgage at the First National Bank by the vice-president's letter of January 23, 1950. This Court, in Putney v. Schmidt, 1911, 16 N.M. 400, 120 P. 720, resolved similar questions in favor of the position taken by defendants. However, we do not deem that case controlling here for the following reasons. By the time the Agnews received this information, they had left New Mexico and were concerned with affairs outside of this state; under the terms of the collateral assignment of the contract on the Apache Lodge, the plaintiffs had no right to take over the Apache property until there was a default on the $23,000 note from Beeble to Agnew. No such default occurred until March; the misrepresentations of fact made in this case by their very nature placed plaintiffs in a position so complex and so difficult to evaluate that the time required by them to return to New Mexico, employ counsel and explore the possibilities of salvaging this transaction cannot be deemed an inordinate delay in the exercise of their right to rescission. Nor can the defendant Landers protest that this delay has prevented plaintiffs from returning him to status quo. In Brown v. Norman, 65 Miss. 369, 4 So. 293, 297, the court said: The defendant Landers insisted, contrary to his original agreement, that he be not required to endorse the $23,000 note from Beeble to himself and that the collateral assignment run direct from Beeble to plaintiffs; in short, to the greatest possible extent he insulated himself and his own financial responsibility from jeopardy. Having done so, we cannot recognize his protest that he was not allowed to again become a principal in the transaction for the purchase of Apache Lodge. Further, the record reveals that the $23,000 promissory *979 note from Beeble to Agnew still rests as a collection item in the hands of the First National Bank in Albuquerque. To this note, endorsed to defendants without recourse on plaintiffs, the defendants are entitled for the purpose of returning them to their status quo insofar as this is possible. On condition that plaintiffs procure and deliver to defendant Landers the promissory note for $23,000 properly endorsed by them without recourse to the said Landers, or in the alternative, on condition that they deliver said note so endorsed to the clerk of the district court for the use of Landers, the judgment of the trial court is affirmed. In the event of the failure of plaintiffs to comply with this condition, the judgment of the trial court is reversed with direction to the trial court to take such further action as is necessary to determine the fate and disposition made of this $23,000 note and make such other disposition of said case on the merits as is proper and not in conflict with the views expressed herein. It is so ordered. COMPTON and SEYMOUR, JJ., concur. SADLER, J., concurs in the result. McGHEE, J., dissents. McGHEE, Justice (dissenting). Because of changes made in the majority opinion after I submitted my dissent, changes of which I was not advised, my former dissent is withdrawn and the following substituted therefor: What appears to be a statement of facts in the second paragraph of the majority opinion is, in fact, a summary of allegations in the complaint. No finding was made or requested by the plaintiffs regarding the existence of a supposed mortgage to the First National Bank of Albuquerque, and the majority opinion correctly holds the findings on the other allegations above referred to could not, under the record in the case, sustain the decree of rescission. The only material finding of fact left is number 6 set out in the majority opinion. True, the majority hang on a statement there was a false representation that the only indebtedness against the property was a $77,000 mortgage to the First National Bank of Albuquerque, but there is no finding of fact to support it, and none was requested. Thus, only the claimed concealment of the pyramided contracts remains to support the decree, and the finding of concealment of the contract from Truitt to Beeble dated September 20, 1949, must be eliminated, as it was the one assigned by Beeble to Agnew, and read by the latter. Agnew also testified that he knew Beeble was paying on a contract with Truitt. Evidently Agnew did not believe he had been induced to enter into the contract by any representations as to a mortgage at the bank or the concealment of the pyramided contracts, or else felt he had not proved such fact, for when he filed his requested findings of fact and conclusions of law approximately 23 months after the close of the trial, his requests as to the claimed false representations which induced him to enter into the contract read: In the next paragraph he asked the trial court to find: *980 I agree with Agnew that he had not established a claim he was deceived by representations as to the contracts and mortgage. But, even if it be conceded Agnew had a right to rescind at one time, he still is not entitled to a decree of rescission because of his delay in acting. He knew in January before filing the complaint in July that the First National Bank did not have a $77,000 mortgage; in March preceding the filing of complaint he knew in detail about the sales contracts, if he did not in fact know about them previously. He also knew in March that Beeble was not keeping up the payments and visited with him about the matter; he had his attorney contact Mrs. Motto who held the No. 1 contract in an unsuccessful effort to get her to reduce the payments. When in April Mrs. Motto gave notice that she would take back the property in accordance with her contract unless the default was cured within thirty days, the Agnews were promptly advised of such fact. Instead of then rescinding and thus allowing Landers to step in and protect himself, Agnew did nothing until in July, when the property had been irretrievably lost in May. Apparently the only New Mexico case treating this problem directly is that of Putney v. Schmidt, 1911, 16 N.M. 400, 120 P. 720, 723, where it is said: The Restatement, Restitution, § 64, p. 248 states: In the Restatement illustrations to this section appears the following: To the same effect is 2 Black on Rescission and Cancellation, (2d Ed.) § 536, pp. 1316, 1320, 1321: *981 See also, 12 Am.Jur. (Contracts) § 447; 24 Am.Jur. (Fraud and Deceit) § 208; and 17 C.J.S., Contracts, §§ 431, 432a. The only authority cited by the majority in support of their opinion is an excerpt from Brown v. Norman, 1888, 65 Miss. 369, 4 So. 293, but the facts in that case and this one are entirely different. That case was before the court on a complaint and demurrer. It was alleged the defendant induced the plaintiff to trade his farm at a value of $3,100 plus $500 in cash for a third interest in a partnership, the assets of which were $5,000 and its indebtedness was $12,000; that it was represented the firm was in a solvent and prosperous condition and that a false statement of its assets and liabilities had been furnished for his inspection; that the false representations and trade were made in October, 1885, and the firm and business was placed in receivership the following March at the request of one of the partners; that the plaintiff did not learn of the facts until shortly before the business was placed in receivership. Truly, what the plaintiff in that case received could not be classed as more than moonshine, but an additional reason was given for holding the complaint good on demurrer that when the defendant sold his interest in the partnership he was no longer a partner, and he could not have been re-admitted to partnership without the consent of the two remaining partners. In this case there is not a word of testimony that the Apache Lodge was not worth everything there was against it no such claim that I can find is made by the Agnews. The Apache Lodge had 18 rental units, plus living quarters, was reasonably new and the tract of land was 250 yards in length and 96 yards in width, less some conveyed to the county evidently for right of way; also, it was located on Highway 66 immediately west of Albuquerque. Brown v. Norman, supra, except for the lifting of some comforting words for the hard pressed majority is not authority for excusing the delay in this case. I dissent. LUJAN, Justice. The defendants have moved for rehearing. We have carefully examined the motion as well as the briefs supporting it and find nothing to persuade us the opinion on file announces a wrong result. It may be well, however, to emphasize one or two factors so much relied upon as establishing error in the opinion filed. It is said there is no specific finding of the representation relative to a $77,000 mortgage held by First National Bank in Albuquerque. True enough, but the mortgage of the bank in the amount mentioned was but one element or factor in the confused state of title, made up of a sizeable number of pyramided purchase contracts held at varying times in the chain of title by sundry persons, knowledge whereof was fraudulently concealed from the plaintiffs, as set out in the findings and expressly found by the court. Furthermore, but for Landers' unseemly solicitude to completely erase his name and all prospect of liability from the transaction with Agnew, as evidenced by substitution of a "no recourse" endorsement on the Beeble note and the securing of an assignment of Beeble's contract directly to Agnew by Beeble leaving him, Landers, completely out of the picture, he might reasonably have expected notice from Mrs. Motto along with all others in the chain of title down to himself, thereby giving him the opportunity, now seemingly so much coveted, to step in and save the purchase contract. In other words, in his overzealous effort to insulate himself against all possible future liability in connection with the matter, he "insulated" himself out of the right to notice of default, which he now says or claims would have given him an opportunity to save himself. The record abounds in proof of a gross fraud on plaintiffs. If the $23,000 note he "hawked" to Agnew has any value, he gets it back. If it is worthless he still gets it back. The motion for rehearing will be denied. It is so ordered. *982 COMPTON, C.J., and SADLER, J., concur. KIKER, J., not participating. McGHEE, Justice (dissenting). The majority opinion on the motion for a rehearing states the record abounds with fraud on the part of Landers, which makes me wonder why the majority vacated findings of actionable fraud which Agnew said caused him to enter into the contract, as reflected by his complaint and requested findings of fact set out in my dissent to the original opinion. The motion for rehearing should be granted and the judgment reversed. I therefore dissent.