Opinion ID: 494657
Heading Depth: 2
Heading Rank: 2

Heading: Rescission of the Aggieville Contract.

Text: 19 Appellants next argue that the district court erred in holding that bankrupt was entitled to rescission of the Aggieville contract. Appellants assert that once the district court found the bankruptcy court's determination that Progressive was not insolvent on the date of foreclosure to be clearly erroneous, it was required by the law of the case, set out by Judge Collinson in his remand order, to hold that appellants were entitled to foreclose their security interest in Aggieville and deny the trustee's counterclaim for rescission. We do not agree. 20 On remand, the bankruptcy court found that Progressive was not insolvent on May 9, 1977. It also found that Progressive was not in default on any terms, condition, or obligation imposed upon it by the various security agreements. On appeal, Judge Clark set aside as clearly erroneous the bankruptcy court's finding that Progressive was not insolvent, holding that the bankruptcy court had failed to utilize the correct test of insolvency and erroneously applied the test which it did use. Appellants argue that under the law of the case set out by Judge Collinson on his remand order, namely, that if bankrupt were insolvent on May 9, 1977, appellants were excused from the duty of tendering title to the real estate, and the trustee's counterclaim for rescission must be denied, the district court was required to deny the trustee's counterclaim for rescission once it found Progressive to be insolvent. 21 The law of the case doctrine generally requires that a decision on a former appeal be followed in any subsequent proceedings in that court or a lower court unless evidence subsequently introduced is substantially different or the decision is clearly erroneous and works manifest injustice. See Liddell v. State of Missouri, 731 F.2d 1294 (8th Cir.), cert. denied, 469 U.S. 816, 105 S.Ct. 82, 83 L.Ed.2d 30 (1984); United States v. Unger, 700 F.2d 445 (8th Cir.), cert. denied, 464 U.S. 934, 104 S.Ct. 339, 78 L.Ed.2d 308 (1983); Continental Bank & Trust Co. v. American Bonding Co., 630 F.2d 606, 608 (8th Cir.1980). The doctrine is a rule of practice rather than a command to the courts. Otten v. Stonewall Ins. Co., 538 F.2d 210, 212 (8th Cir.1976). 22 As we see it, the law of the case doctrine has no application in this case. Judge Collinson interjected the question of Progressive's insolvency vel non on his own motion. He said nothing about the doctrine of waiver of grounds for forfeiture or foreclosure. In the event, Judge Clark's ultimate holding treated the question of Progressive's insolvency as irrelevant inasmuch as appellants had waived it by failing to assert it in its complaint for foreclosure. Given the tortuous (and inexcusably prolonged) procedural path this case has traversed, we are loath to read into Judge Collinson's order more than appears there.
23 Appellants next argue that the district court erred in finding that they had waived their right to declare forfeiture on the ground of insolvency. The district court found that since appellants failed to assert any ground other than nonpayment in their notice of forfeiture and petition for reclamation, they had waived their right to declare forfeiture on any other ground. Appellants assert that no principle of law required them to designate each ground of default in their notice of foreclosure. 24 The remedy of forfeiture under Missouri law is a harsh remedy and is not favored by the courts. In re Estate of Kraeuchi, 729 S.W.2d 566, 568 (Mo.App.1987); Housing Auth. of City of Mansfield v. Rovig, 676 S.W.2d 314, 316 (Mo.App.1984). A covenant permitting forfeiture will be strictly construed against the party seeking forfeiture, Frank v. Dodd, 130 S.W.2d 210, 215 (Mo.App.1939), and both the letter and spirit of the law must be complied with before a court will permit forfeiture. Rovig, 676 S.W.2d at 316. See State v. Jones, 637 S.W.2d 337, 338 (Mo.App.1982). 25 The bankruptcy court on remand found that appellants' ground for acceleration and forfeiture was based solely on alleged default in payments. The court stated that the notice delivered on May 9, 1977, and the testimony offered at the 1977 hearing demonstrates clearly that Lipscomb's attempt to accelerate was based upon an alleged default in payment and upon no other ground. Op. at 23. The court noted that while the language of the notice of foreclosure 8 is broader, it can be fairly read as simply detailing the remedies Lipscomb intended to utilize because of the default in payment. This finding was affirmed on appeal by the district court. 26 Substantial evidence exists to support the finding that appellants relied solely on a default in payment in declaring a forfeiture. The record reveals that appellants had notice of Progressive's financial troubles as early as the spring of 1976 but failed to declare a forfeiture until May of 1977. In January of 1977, moreover, Caleb Lipscomb took active control of the Aggieville operation and had full access to Aggieville records, including the authority to pay all bills, but waited until he received notice that he would no longer have checkbook authority over Aggieville to declare Progressive in default on its payments. Furthermore, appellants failed to assert any ground other than nonpayment in their notice of forfeiture and their petition for reclamation. Based on such evidence, we cannot say that the bankruptcy court's finding that appellants relied solely on default in payment in declaring forfeiture is clearly erroneous. 27 Under Missouri law the expression of a specific ground in the notice of forfeiture or declaration of default precludes the later assertion of additional grounds. Independence Flying Service, Inc. v. Abitz, 386 S.W.2d 399 (Mo.1965); Rovig, 676 S.W.2d at 317. See also Morris v. Reed, 510 S.W.2d 234, 240 (Mo.App.1974) (once insurer denies liability on a given ground, it may not thereafter defend on different grounds). In Abitz, the Missouri Supreme Court held in a landlord-tenant dispute involving a question of forfeiture that the assertion of one ground of forfeiture precluded the right to rely on another ground even though it existed at the same time. Abitz, 386 S.W.2d at 404. Accordingly, because appellants relied solely on nonpayment in declaring a forfeiture, they are now precluded from declaring forfeiture on any other ground. We therefore need not address the issue of whether Progressive was insolvent at the time of foreclosure. 28 The next issue that must be addressed is whether appellants were justified in declaring a forfeiture due to Progressive's late payment. 29 Appellants argued at the initial bankruptcy trial that Progressive was in default of its contractual obligation because it failed to tender the May 1977 installment payment on or before May 9, 1977. The bankruptcy court found that by previously accepting Progressive's late payments appellants had waived their right to payment by the 6th of the month and that the contract was thereby modified to permit Progressive a reasonable time in which to make the monthly payments. The district court affirmed, concluding that the findings were supported by substantial evidence. We agree. 30 In Fritts v. Cloud Oak Flooring Co., 478 S.W.2d 8, 12 (Mo.App.1972), the court stated: 31 Where a contract expressly provides that 'time shall be of the essence,' or that in case of nonpayment of an installment on time the rights of the obligor shall be forfeited, or that in such case the obligee may declare a forfeiture, performance on time is thereby made a condition of the obligor's reciprocal rights under the contract. But the courts do not favor forfeitures ... and [t]o avoid such a forfeiture, the courts have been very astute to find and declare the existence of a waiver or an estoppel. 3A Corbin on Contracts Sec. 754, p. 489. Any expressions or conduct of the obligee that leads the obligor reasonably to believe that performance on time will not be insisted on will operate as a waiver of the time condition, as to subsequent defaults as well as to antecedent ones. Such a belief by the obligor may be reasonable where it is induced by the obligee's receipt of a series of delayed payments without objection. Id. Sec. 754 at pp. 494-495. 32 The court further stated that where a party acquiesces in the making of belated payments, in departure from the express terms of the contract, for a length of time and under circumstances establishing a course of dealing upon which the party may rely, the party cannot declare a forfeiture, but must, to make use of the right to forfeit, first warn the other party of his intentions to make use of the right as to future payments. Fritts, 478 S.W.2d at 12-13. 33 Appellants clearly acquiesced in Progressive's late payments. Progressive consistently made late payments on the notes, some as much as twenty to twenty-five days late, to which appellants made no objection. In order to declare a forfeiture because of late payments, appellants were required to first give notice of such intent. Having failed to do so, they waived their right to declare such a forfeiture. Consequently, Progressive's failure to tender the May 1977 installment payment by May 9, 1977, was not a default entitling appellants to foreclose their security interest in the Aggieville property. 34 The next question is whether Progressive was entitled to rescind the contract due to a material breach by appellants. 35 There is no dispute among the parties that marketable title to four lots of the Liberal tract was never obtained by appellants. Lipscomb himself admitted that he knew of the defects in the title. The dispute is whether this constituted a material breach of the contract. 9 For a breach of a contract to justify rescission, it must relate to a vital provision going to the very substance or root of the agreement and cannot relate simply to a subordinate or incidental matter. McCullough v. Newton, 348 S.W.2d 138, 142 (Mo.1961); B & B Equipment Co., Inc. v. Bowen, 581 S.W.2d 80, 85-6 (Mo.App.1979); Hartley v. Williams, 287 S.W.2d 129, 135 (Mo.App.1956). 36 Under Missouri law a vendor must always furnish the exact title called for by his contract. Aker v. Lipscomb, 300 Mo. 303, 253 S.W. 995, 996 (1923); Hartley, 287 S.W.2d at 134. In Hartley, the vendor failed to furnish an abstract showing merchantable title, as required by the contract. The Missouri Court of Appeals held that this failure was a breach which went to the very root of the contract and warranted rescission. Id. at 135. 37 A similar situation is present here. The contract provided that appellants were to furnish Progressive with title for all the Aggieville property free and clear of any and all liens and encumbrances. No deeds, however, to any of the real estate were ever tendered to Progressive because the parties agreed that the real estate would not be transferred until all the titles were marketable. It is clear from this that both parties believed that deeding title free and clear of any encumbrances to all of the Aggieville property was a provision going to the very root of the agreement. The record further reveals that although notice of the defect was not communicated in writing to appellants, notice was timely communicated and Lipscomb was aware of its importance. Lipscomb knew that Progressive refused to take title to any of the real estate until the Liberal tract could be deeded free and clear. Based on this evidence, we conclude that appellants were guilty of a material breach that entitled Progressive to rescind the contract. 38