Opinion ID: 449245
Heading Depth: 2
Heading Rank: 1

Heading: The Perrys' Right to Rescind the Contract

Text: 27 The critical issue in this appeal is whether the district court correctly granted Greiner's, Stewart's, and Rod's motions for judgments n.o.v., overturning the jury's findings of liability and damages. After examining the jury's responses to the special interrogatories, the district court concluded in effect that the damages the jury found the Perrys had sustained grew out of the attempt to rescind the contract. The district court's decision does not accept the assertion that there was a valid rescission. The court further concluded that the Perrys were entitled to sue for damages for either breach of warranty or negligence, but that they failed to offer any evidence concerning the proper measure of damages for either cause of action. We agree with these findings and conclusions of the district court. 28 Throughout this proceeding the Perrys based their right to rescind on a provision of the earnest money contract between themselves and Greiner. They assert that this provision authorized them to assert any objection to the title insurance policy upon receipt of that policy and to demand that Greiner cure any objections they raised. The general warranty deed the Perrys received and accepted at the closing contained no similar provision. 29 In Texas, as in most other jurisdictions, in the absence of fraud, accident, or mutual mistake, the rights and duties created by a land sales contract are merged into the deed when the seller delivers and the buyer accepts the deed. See Commercial Bank, Unincorporated v. Satterwhite, 413 S.W.2d 905, 909 (Tex.1967); Barker v. Coastal Builders, Inc., 153 Tex. 540, 271 S.W.2d 798, 803 (1954); Tuberville v. Upper Valley Farms, Inc., 616 S.W.2d 676, 678 (Tex.Civ.App.--Corpus Christi 1981, no writ); Duke v. Duke, 605 S.W.2d 408, 410 (Tex.Civ.App.--El Paso 1980, no writ); Carter v. Barclay, 476 S.W.2d 909, 914 (Tex.Civ.App.--Amarillo 1972, no writ); Baker v. Baker, 207 S.W.2d 244, 250 (Tex.Civ.App.--San Antonio 1947, writ ref'd n.r.e.); see also 6A R. Powell & P. Rohan, Powell on Real Property p 893, at 81-112 (1984 ed.); 6A Corbin, Corbin on Contracts Sec. 1319, at 310 (1962). In this case, the Perrys assert that the merger doctrine is inoperative for two separate reasons: (1) Rod knew that the garage and driveway encroached upon the existing utility easement, but she fraudulently induced the Perrys to close on the property and to accept the deed, and (2) Rod and the Perrys had the mistaken belief that the property was free from encroachments. 30 The Perrys properly raised the fraud argument to the jury, but the jury rejected the claim. In response to the special interrogatories, the jury found that Rod's statements at the closing were negligently made but not fraudulent; they were false, misleading, or deceptive acts. (emphasis added). As an appellate court, our duty is to reconcile the jury's responses to the special interrogatories as consistent, if that is possible. Crossland v. Canteen Corp., 711 F.2d 714, 725 (5th Cir.1983). We view the jury's responses in this case as consistent--the jury found that Rod's statements were false (that is--untrue), but were not fraudulent. The Perrys therefore failed to prove fraud, and the merger doctrine cannot be avoided on that ground. 31 The Perrys remaining ground fails for different reasons. To vitiate the merger doctrine on the basis of mutual mistake, the party seeking to avoid the doctrine must show that both parties had the same misunderstanding about the same material fact. Tuberville v. Upper Valley Farms, supra, 616 S.W.2d at 678; see also A.L.G. Enterprises, Inc. v. Huffman, 660 S.W.2d 603, 606 (Tex.Civ.App.--Corpus Christi 1983), aff'd in relevant part, 672 S.W.2d 230 (Tex.1984). A mutual mistake is material if it involves the substance or subject matter of the contract and is not related merely to a collateral matter. Horner v. Bourland, 724 F.2d 1142, 1145 (5th Cir.1984); Durham v. Uvalde Rock Asphalt Co., 599 S.W.2d 866, 870 (Tex.Civ.App.--San Antonio 1980, no writ); Brown McKee, Inc. v. Western Beef, Inc., 538 S.W.2d 840, 845 (Tex.Civ.App.--Amarillo 1976, writ ref'd n.r.e.). 32 In this case, the Perrys never asked the court to submit a special interrogatory permitting the jury to determine whether Rod's and the Perrys' understanding of the land survey generally, and the lack of any encroachment specifically, constituted a mutual mistake of a material fact. In any event, we find that the record could not support such a conclusion, since the alleged mutual misunderstanding did not affect a material aspect of the contract. 33 The overwhelming evidence adduced at trial revealed: (1) that encroachments upon utility easements, such as the Perrys', were common problems faced by landowners and HL & P; (2) that HL & P routinely granted consents or complete releases in such cases; (3) that within one month after the Perrys asserted their objection, Stewart presented them with HL & P's consent to encroachment; (4) that the Perrys were assured repeatedly that the problem would be resolved; (5) that HL & P had never destroyed structures because those structures encroached onto one of its easements; (6) that the electrical conduit in the HL & P easement adjacent to the Perrys' property was two feet from the Perrys' foundation, and there was no likelihood that the Perrys' property ever would be disturbed as a result of the encroachment onto this easement; (7) that the encroachment affected neither the marketability nor the value of the Perrys' home; and (8) that Stewart, at a cost of only $100, eventually secured from HL & P a complete waiver of HL & P's rights to that portion of the easement on which the Perrys' garage and driveway encroached. These facts convince us that alleged misunderstanding concerning the land survey simply did not relate to a material aspect of the bargain and, at best, concerned merely a collateral matter. As such, there could be no rescission based on either the fraud or the mutual mistake theories. 34 Since the land sales contract merged into the deed, the Perrys lacked the right to rescind. Instead, they were entitled to sue only for damages for Greiner's breach of warranty or negligence in failing to convey clear title. Bristow v. City Investment Co., 110 S.W.2d 1222, 1224 (Tex.Civ.App.--Galveston 1937, writ dis'd); Luckenbach v. Thomas, 166 S.W. 99, 103 (Tex.Civ.App.--San Antonio 1914, no writ). The proper measure of damages in such a case is either the difference in the property's value with and without the defect, Moren v. Pruske, 570 S.W.2d 442, 444 (Tex.Civ.App.--San Antonio 1978, writ ref'd n.r.e.), or the cost to remedy the defect, Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 164 (Tex.1982). 35 At trial, the Perrys sought to recover for the expenses incident to their attempted rescission--their house hunting expenses, the cost of moving from their house, the cost of renting an apartment after they moved, the loss of favorable financing and depreciation on the house, closing costs, and house payments made to Hammond. Since the Perrys lacked the right to rescind, these damages were not foreseeable, and the district court correctly granted Greiner's, Stewart's, and Rod's motions for judgments n.o.v. And because the Perrys failed to introduce evidence concerning either the diminution in the house's value or the cost of obtaining a release from HL & P, the district court also correctly concluded that the Perrys could not recover for Greiner's breach of warranty or negligence.