Court Opinion

ID: 9531138
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:07:55.493574+00
Date Added: 2024-06-11T13:28:21.270989
License: Public Domain

WADE, Justice
(dissenting).
I think plaintiffs established a failure of consideration. The Van Tassells, appellants here and plaintiffs below, argue that C. Ed. Lewis, one of the defendants and respondents, was guilty of bad faith, and that since there was not sufficient funds in the bank to pay the $10,000 check which he made payable to the plaintiffs, failure of consideration is established. But it was never intended by any one that this check should be presented of paid to analyses the necessary elements of failure of consideration *371plaintiffs, and so it is immaterial that there were no funds there to pay it. Neither fraud nor bad faith are necessary elements of failure of consideration, although both may be present. Neither appellants nor the prevailing opinion nor applies those elements to the facts of this case. The prevailing opinion assumes that since plaintiffs were given credit for $10,000 on the December 27th purported contract of purchase of the Meister Dairy Farm in California, there was no failure of consideration. I do not think that follows. An analysis of the law on that subject appliéd to the facts here presented shows that it comes within that doctrine.
Williston on Contracts, Revised Edition, Section 814, says:
“It has been said: ‘Strictly speaking, there can be no such thing as a “failure of consideration.” Either the promisor receives the consideration he has bargained for, or he does not. If he does not receive the consideration, there is no contract; if he does receive the consideration there can he no “failure” of consideration thereafter.’ Though the expression thus criticized may be sometimes loosely used, it is not inaccurate when employed in its generic sense to cover every case where a promised exchange of values does not take place, irrespective of whether with or without the fault of a party. It is used not infrequently where mistake or fraud excuses the performance of a promise, as where a purchaser promises to pay for a supposed patent which is in fact void, or for a horse which, unknown to the parties or at least to the buyer, is not in existence at the time of the bargain. But the fact that there is fraud or mistake will not prevent it from, also being true that there is failure of consideration. * * *
“The charge of inaccuracy against the term is due to the assumption that the consideration that fails is the consideration for a promise, whereas it is the consideration for a performance. Since the fundamental meaning of consideration is a price or exchange for something, it is as accurate terminology to speak of the consideration for a conveyance or other executed act as to speak of the consideration for a promise. * * * Failure of consideration then will exist wherever one who has either given or promised to give some performance fails without his fault to receive in some material respect the agreed exchange for that performance. Thus, one who has paid $500 in return for an agreement to transfer a horse to him fails to receive the consideration or exchange for his $500 if the horse is not transferred. * * * The reason why the horse is not transferred may be due to excusable impossibility, as if the horse should die before the title was transferred, or it may be due to breach of duty on the part of *372the seller. In either case the buyer may recover his payment. * * *
“An analogous situation arises in bilateral contracts where both promises are still executory. If the buyer has not yet paid the price for the horse at the time of its death, the consideration or exchange for the payment has failed, and, similarly, if the seller wrongfully breaks his promise to transfer, the buyer is not getting the exchange or consideration for the payment which he had agreed to make. And as the seller might reclaim the price if it had already been paid, a fortiori, he is excused from keeping his promise to pay it, if not yet paid. Failure of consideration, then, gives the disappointed party a right to rescind the contract, but it is perhaps more often used as a defense to an action on the counter-promise.” (Emphasis added.)
See Ibid, Section 137, dealing with assignment of a supposed right as a consideration, and Section 1456 to 1468 dealing with failure of consideration which will justify a rescission of a conveyance of real and personal property and when the property or value thereof may be recovered.
Restatement of the Law, Contracts, Section 274, provides:
“Failure of Consideration as a Discharge of Duty.
“(1) In promises for an agreed exchange, any material failure of performance by one party not justified by the conduct of the other discharges the latter’s duty to give the agreed exchange even though his promise is not in terms conditional. An immaterial failure does not operate as such a discharge.
“(2) The rule of Subsection (1) is applicable though the failure of performance is not a violation of legal duty.
“Comment:
“a. The reason for the rules in this and the following sections of this Topic, is failure of consideration. Failure of consideration is a generic expression covering every case where an exchange of values is to be made and the exchange does not take place, either because of the fault of a party or without his fault. In any such case a party who has not himself caused the failure of consideration by a breach of duty, may refrain from giving any part of the exchange, which he has not yet given, and generally may reclaim what he has given, or its value.
“b. Consideration, as used in the phrase, failure of consideration, means merely an exchange in fact agreed upon. Failure of consideration, therefore, is failure to receive such an exchange. In the formation of contracts, consideration is the exchange for a promise (Sec. 76). In the *373present connection the consideration in question is the promised performance of one party agreed to he exchanged for that of the other.
* * * * # *
“Comment on Subsection (2):
“c. The law excuses a contracting party from performing his promise for a variety of reasons — infancy, insanity, • impossibility caused in certain ways; but however blameles in law and fact a party to a contract may be in failing to perform his promise, if he does fail he should not have what is promised in exchange for his performance.”
See also Sec. 288 and Comments a and b.
To the same effect is Kentucky-Tennessee Light & Power Co. v. City of Paris, 173 Tenn. 123, 114 S. W. 2d 815, 118 A. L. R. 1025; In re Conrad’s Estate, 333 Pa. 561, 3 A. 2d 697; and American Surety Co. v. Conner, 251 N. Y. 1, 166 N. E. 783, 65 A. L. R. 244. In the latter case, the court, through Mr. Chief Justice CARDOZO said, 251 N. Y. 1, 166 N. E. at page 786, 65 A. L. R. at page 250:
* * * “After all, the underlying principle, running through the cases is this and nothing more, that the action for money had and received upon a failure of consideration, partial or complete, is to be ruled by broad considerations of equity and justice, and that the plaintiff may not prevail if he fails to satisfy the court that what the defendant has received should in conscience be returned.”
The doctrine of failure of consideration is based on a broad, general principle of equity, and justice. The consideration which fails is the consideration given for the performance of the contract and not merely the consideration for the promise to perform. Thus, under a sealed contract where no consideration is required, in order to make a binding contract, where there is a consideration agreed upon, a failure of that consideration is a valid defense. See In re Conrad’s Estate, supra. As stated above by Williston on Contracts, failure of consideration will exist wherever one who has given some performance fails without his fault to receive in some material respect the agreed exchange for that performance. Or as stated in Section 274, comment a, in Restatement of the Law on Contracts quoted above, failure of consideration covers *374every case where an exchange of values is to be made and the exchange does not take place. And in such cases a party who has not himself caused the failure of consideration by a breach of duty may reclaim what he has given, or its value. We must keep in mind that failure of consideration may be the result of fraud, mistake or breach of contract, but none of those elements are necessary. It may grow out of circumstances where a party who fails to perform is prevented therefrom by events which are beyond his control and without any fault on his part. In such case, although the failing party is blameless, he has failed to give the performance which the other party bargained for and therefore the other party can recover the performance which he has given in exchange therefor. Failure of consideration, however, contemplates some event which was not anticipated by the parties, or at least by the injured party, at the time of making the contract, and therefore no express provision has been made for the eventualities as they occurred. This doctrine is based on justice and fair play to protect an innocent party who, without any failure or fault on his own part, does not receive the thing he bargained for or the thing the parties to the contract contemplated he would receive, and it is immaterial whether the other party is guilty of fraud, mistake, breach of contract, or whether the reason why he does not perform is something beyond his control.
Did the plaintiffs receive from the defendants the consideration of performance which they bargained for, or Which the parties contemplated they should get in payment for transferring their farm to defendants? We are not concerned with the consideration which they were to receive from the Meisters, but only with their contract with the Lewises under which they transferred their Du-chesne County farm. In determining this question, we should look to the substance of these transactions and not *375be misled by the artificial pretenses and bookkeeping formalities. There is little or no express evidence on this subject and what their agreement was must be inferred or implied in fact from what they did and the purposes which they intended to accomplish thereby. There is practically no dispute in the evidence on the facts which have a bearing on this question.
On November 28th, 1947, at the Meister Dairy Farm in California, Gail and Carl Van Tassell, through Walter Griffiths, a salesman for C. Ed. Lewis Company, offered to purchase that farm and paid to Griffiths $500 earnest money to bind the bargain. Griffiths executed to them a receipt for this money on the usual Salt Lake City Real Estate Board form, which stated in general terms the provisions under which they proposed to purchase. It stated the number of acres, the buildings and the number and variety of livestock and implements and machinery thereon, and fixed the purchase price at $150,000 with a down payment of $24,500, on or before December 20, 1947, in addition to the earnest money. Carl and Gail Van Tassell and the Meisters all signed the acceptance of the provisions contained in the receipt.
The Van Tassells thereupon returned to Salt Lake City, where the plaintiffs listed their Duchesne County Farm for sale with the C. Ed. Lewis Company in order to raise the money for the down payment on the Meister Dairy Farm. The Lewis Company made no sale of that farm, and on December 26th, 1947, after the time fixed for making the down payment in the receipt, plaintiffs executed to defendants a deed conveying their farm to them, and it was agreed that the purchase price of that farm would be $10,000 in addition to the defendants agreeing to assume and pay an $8,000 mortgage thereon.
This deed was handed to C. Ed. Lewis in his office in *376Salt Lake City, where he made a check payable to plaintiffs for $10,000 and another check payable to the Meisters for a similar amount. Lewis handed the check made to plaintiffs to Carl Van Tassell, who endorsed his and his wife’s name thereon and Lewis locked this check and the plaintiff’s deed in his safe. He claims that they executed an escrow agreement to the effect that if in their airplane flight to California, Carl Van Tassell was killed, the escrow would be surrendered to Mrs. Van Tassell, but as the trial court observed in his memorandum of decision he did not state whether the deed would be surrendered to her or the check. Carl denied that he signed any such instrument. Regardless of this, I think it obvious that it was the intention of the parties at that time that if for any reason no contract of purchase by the Van Tassells of the Meister Dairy Farm was entered into, the check would be held by Lewis and the deed returned to the plaintiffs. The trial court so held in its memorandum. There was no other purpose in conveying the property to the Lewises except to enable the Van Tassells to purchase the Meister Farm.
After depositing this check and deed in his safe, C. Ed. Lewis took the $10,000 check which he had made out to the Meisters and with Carl and Gail Van Tassell, flew to the Meister Farm in California. There, on December 27th, 1947, the purported contract for the purchase and sale of the Meister Dairy Farm was signed by Carl and Gail Van Tassell and the Meisters. This contract was drawn up by an attorney employed by the Meisters. The only description of the property which was purportedly being purchased and sold was “The Meister Dairy Farm, located near Tisdale Weir, near Meridian,” in Sutter County, California. It acknowledged receipt by the Meisters of $20,000 down payment and provided for a payment of $2500 on January 5th, 1948, and another such payment on May 5th of that year, and the balance to be paid in monthly installments of $1,000 each, commencing on *377February 1st, 1948, with interest from that date. The contract further provided that upon the complete performance of their part of the contract by the buyers, the sellers would by deed convey to them a marketable title to the property. No mention is made of any abstract and there is nothing in this instrument or in the earnest money receipt to the effect that there were any liens or mortgages whatever against either the real or personal property, and there is nothing in the record which indicates that the plaintiffs or any of the Van Tassells were told, prior to the signing of this instrument, that there were any liens outstanding against this property.
Before signing this purported contract, both the Van Tas-sells testified and Lewis did not deny, that he took them to one side and told them that this was only a preliminary agreement and that when their wives came down a permanent agreement would be drawn up, and this, together with the abstracts and deeds to the property and a list of the personalty which went with the farm, would be put in the bank as an escrow agreement and that he would take care of that business for them. Acting on these representations they signed that purported contract.
The trial court in its memerandum expressly found that this was only a preliminary contract, thus clearly showing that it accepted this testimony as true. From these facts and circumstances, it is clear that when the purported contract of December 27th was signed, both plaintiff Carl Van Tassell and defendant, C. Ed. Lewis, who negotiated both that contract and the contract between the plaintiffs and defendants involved in this action, understood that this instrument of December 27, 1947, was only a preliminary agreement and was not the contract on which plaintiffs were to receive a $10,000.00 credit as the consideration for deeding their Duchesne County farm to defendants but that such deed was delivered conditionally upon Lewis negotiating a *378permanent enforcible contract, with abstracts of title showing that the Meisters held the property under such ownership and free of liens that they could convey a good marketable title to the Van Tassells in case they lived up to their agreement.
Thereupon Lewis had the Meisters endorse the $10,000 check which he had made payable to them and brought with him from Salt Lake City, and taking that check and the Van Tassells with him, he flew back home. There he deposited the two $10,000 checks in his bank account on which they were drawn where they were stamped paid, thereby cancelling them. Shortly thereafter he recorded the deed from the plaintiffs of their Duchesne County Farm.
Lewis testified that the Meisters gave him the $10,000 check in payment of a debt that they owed him. But the only debt that he mentions that they owed him was his commission for selling the Dairy farm. In Exhibit 2, one of his office bookkeeping vouchers under date of December 26th, 1947, headed “Ward and Lueltha Meister” he credits his personal investment account with $10,000 “To apply on Commission on sale of the Meister Dairy Farm at Meridian, California.” It seems probable that he had an arrangement with the Meisters that he could keep whatever he got out of the Van Tassell farm as his commissions. Whatever his arrangements were with the Meisters with reference to this check and his commission, is immaterial to our problem here, for it is clear that the Van Tassells did not owe him any commission for his sale of this property and he did not cancel any debt which they owed him on account of the transfer of their farm to the defendants.
After coming to Utah with Lewis, the Van Tassells shortly returned to the Meister Dairy Farm in California, of which they took possession and operated for a short time. Although they frequently inquired about the title to the Dairy Farm and the permanent contract and escrow agree*379ment which Lewis had promised to arrange for them before they signed the preliminary agreement, nothing was ever done about it and on April 21, 1948, the Sutter County Branch of the Bank of America came onto the dairy farm and sold the livestock under a chattel mortgage it held and the Federal Land Bank commenced proceedings to foreclose a mortgage against the real property. The Meisters turned over $9000 to the Van Tassells which they received from the sale of the livestock and the Van Tassells returned to Utah. There is no claim whatever that this property was taken from the Van Tassells as a result of their failure to perform their part of the contract.
From these facts, it is clear that the defendants did not give plaintiffs what they bargained for in exchange for their Duchesne County farm. Making a $10,000 check payable to plaintiffs and holding it for a while in his safe with their endorsement and later depositing it in the bank on which it was drawn, was no payment for plaintiff’s farm. These checks with the other maneuvers were merely bookkeeping formalities which were entirely lacking in substance. Plaintiffs’ purpose in conveying their farm to defendants was to enable them to make the down payment necessary to purchase the Meister Dairy Farm, as pointed out by the trial court, the deed to their farm was never intended to become operative or of any force or effect until a contract of purchase with the Meisters had been entered into. The plaintiffs were bargaining for a $10,000 credit on the purchase of the Meister Dairy Farm and C. Ed. Lewis undertook to get them that credit and in exchange therefor he was to receive a conveyance of their farm. He did not give them that credit. All he gave them was credit on a preliminary and unenforceable conditional agreement for the sale to them of that dairy farm, which contained no valid description of the land and no mention of the livestock or machinery which was to go with it, and no arrangements whatever were made to insure that the sellers had *380title to the property, or to take care of the payment of any outstanding liens or mortgages which existed against either the real or personal property.
It is unthinkable that by Carl and Gail Van Tassell signing that skimpy preliminary agreement they intended to accept the credit therein provided for whatever it might turn out to be worth in full payment for their Duchesne County farm. If there was any doubt that such was not their agreement, it is conclusively set at rest by the undisputed testimony that before plaintiffs signed the purported contract C. Ed Lewis represented to them that this was only a preliminary agreement and if they would sign it, as soon as their wives came to California, he would see that a permanent contract was drawn and that it, with an abstract and deed to the property would be placed in escrow with the bank with a proper description of the land and the livestock and implements which went with the deal. In other words, he thereby undertook by this representation to see that a binding contract should be later executed and placed in escrow in the bank under reasonably safe, business-like arrangements for title under which the Van Tassells could safely pay their money. Relying on this undertaking of C. Ed. Lewis to furnish in the future a valid and safe contract and arrangement the Van Tassells signed the preliminary agreement and took possession of the dairy farm thereunder and plaintiffs allowed the Lewises to record their deed conveying the farm to them.' But they did not get the later performance which they., bargained for and which C. Ed. Lewis undertook to give: them in consideration and exchange for their farm. It is immaterial whether C. Ed. Lewis could have arranged such a valid and safe contract and arrangements so that the Van Tassells would have gotten good title to the property they were bargaining for from the Meisters upon full compliance with their part of the contract had he tried or whether that was impossible for him to perform. He did *381not give them the performance he agreed to. This under the law constitutes, a failure of consideration.
Since the defendants have paid the $8,000 mortgage which was against the property at the time plaintiffs made their deed and entered into a contract to sell the farm to a third person, it might be useless to merely cancel this deed. I think instead of canceling the deed, we should award plaintiffs a money judgment against the defendants for $10,000 with interest secured by a lien on whatever interest defendants have in the farm and the unpaid balance of the purchase price still owing to the defendants by the third party purchaser.