Friedrichsen v. Cobb , 84 Mont. 238 ( 1929 )

The defendant will urge that the plaintiff should have sought to obtain the relief herein sued for through a counterclaim in the foreclosure suit. But a counterclaim seeking the relief herein sued for could not have been successfully interposed by the defendant in the foreclosure suit, since it would have in no way tended to diminish or defeat the plaintiff's recovery in that action. (Osmers v. Furey, 32 Mont. 581, 81 P. 345;Kaufman v. Cooper, 39 Mont. 146, 101 P. 969; Moore v.Gould, 151 Cal. 723, 91 P. 616; Cook-Reynolds Co. v.Wilson, 67 Mont. 147, 214 P. 1104; Hillman v. Luzon CafeCo., 49 Mont. 180, 142 P. 641.) The foreclosure suit did not render the items herein sued for res adjudicata since no counterclaim could have been interposed in such suit.

In respect to the cause of action in the complaint founded upon the plaintiff's abandonment of the contract, the defendant will probably claim that such cause of action is based upon a rescission or a cancellation of the contract. But this is not the case. It is true that these words appear in the complaint. But the plaintiff also uses the word "terminate" in speaking of his discontinuance of the contract in June, 1924. To "terminate" means to "abandon." All of the acts of the plaintiff as set forth in the complaint show an abandonment by him of the contract and while the words "rescind" and "cancel" appear in the complaint, they are so used in the sense of a discontinuance or abandonment of the written instrument. (Cook-Reynolds Co. v. Chipman,47 Mont. 289, 133 P. 694.) Mere matters of form of defective statement, not affecting the substance, will not be held fatal if the pleading, as a whole, shows its general intent and purpose. (Conrad National Bank v. Great Northern Ry. Co., 24 Mont. 178,61 P. 1.) If a complaint states a cause of action on any theory it is proof against a general demurrer. (Grover v.Hines, 66 Mont. 230, 213 P. 250; Awbery v. Schmidt,65 Mont. 265, 211 P. 346; O'Neill v. Montana Elevator Co.,65 Mont. 259, 211 P. 222; Grant v. Nihill, 64 Mont. 420,210 P. 914; Simonsen v. Barth, 64 Mont. 95, 208 P. 938;Decker v. Decker, 56 Mont. 338, 185 P. 168.) A complaint should not be dismissed if it entitles one to legal relief, although it was drawn as a petition in equity. (Donovan v.McDevitt, 36 Mont. 61, 92 P. 49.)

We are aware that the vendor is not required to have good title, in the absence of contract, at the time of the agreement to sell. (Wilson v. Corcoran, 73 Mont. 529, 237 P. 521;Hogsed v. Gillett, 60 Mont. 467, 199 P. 907; Bozdech v.Montana Ranches Co., 67 Mont. 366, 216 P. 319;Hollensteiner v. Anderson, 78 Mont. 122, 252 P. 796.) But plaintiff's suit is not based upon failure of title but is based upon defendant's failure to comply with the contract in other respects and is brought upon that instrument. Time is made of the essence of the contract. Defendant agreed to place the certificates of purchase in escrow by the middle of May, 1918. By June, 1924, he had not yet done so. This clause was an important part of the contract, since it was only through such certificates that plaintiff might receive title to the land and be protected in his payment of the purchase money. Defendant's failure to place the certificates in escrow for a period of more than six years fortified plaintiff in the belief that defendant did not have such certificates and would not be able to obtain the same, and justified defendant in abandoning the contract in June, 1924, before defendant brought suit to foreclose. Where a party desires to rescind upon the ground of mistake or fraud, he must, upon the discovery of the facts, at once announce his purpose and adhere to it. If he be silent and continue to treat the property as his own, he will be held to have waived the objection, and will be conclusively bound by the contract, as if the mistake or fraud had not occurred. He is not permitted to play fast and loose. Delay and vacillation are fatal to the right which had theretofore subsisted. (Ott v. Pace, 43 Mont. 82,115 P. 37; Grymes v. Sanders, 93 U.S. 55, 23 L. Ed. 798;Hills v. Johnson, 52 Mont. 65, 156 P. 122; Edwards v.Muri, 73 Mont. 339, 237 P. 209.) Under the authorities, supra, it is clear that there never was a rescission and, so far as plaintiff is concerned, there never could be one, even assuming that the representations made by defendant were sufficient to afford that relief. Such being the case plaintiff cannot recover herein upon the theory of rescission.

Treating the action as one for equitable relief from a forfeiture, the same result is reached. It has long been the rule in this state that in the absence of an equitable showing, a defaulting purchaser of property is not entitled to a return of any advance payments made by him, even though there is no provision in the contract of sale for liquidated damages in case of default. (Cook-Reynolds Co. v. Chipman, 47 Mont. 289,133 P. 694; Suburban Homes Co. v. North, 50 Mont. 108, Ann. Cas. 1917C, 81, 145 P. 2; Clifton v. Willson, 47 Mont. 305,132 P. 424.) The judgment of foreclosure pleaded by plaintiff shows that he was in default under the contract. He could, therefore, in no event recover the value of improvements. (Edwards v. Muri, supra; Dietz v. Rabe, 65 Mont. 500,211 P. 343.)

As to the ownership of the certificates and the placing of them in escrow, of course no cause of action arises. It has long been the rule in this state that the fact that the vendor did not have marketable title to land at the time the contract of sale was entered into, is not ground for a rescission. (Wilson v.Corcoran, 73 Mont. 529, 237 P. 521; Hogsed v. Gillett,60 Mont. 467, 199 P. 907; Bozdech v. Montana Ranches Co.,67 Mont. 366, 216 P. 319; Hollensteiner v. Anderson, 78 Mont. 122,252 P. 796.)

Representations regarding weather and rainfall in the future are, of course, not actionable. (26 C.J. 1087; Oxweld etc. Co. v. Darden (Tex.Civ.App.), 194 S.W. 1131.)

Plaintiff was guilty of neglect and breach of duty. Equity will not countenance such proceedings. When plaintiff knew the representations to be false, it was his time to move. He could not continue to live on the land, make his payments as they came due, and still claim that he relied upon defendant's representations. (27 C.J. 23, 24; Fitzpatrick v. Flannagan,106 U.S. 648, 27 L. Ed. 211, 1 Sup. Ct. Rep. 369; Kingman Co. v. Stoddard, 85 Fed. 740, 29 C.C.A. 413; Schmidt v. Mesmer,116 Cal. 267, 48 P. 54; Widman v. Barry, 63 Colo. 427,168 P. 31; McCabe v. Kelleher, 90 Or. 45, 175 P. 608;Elwood v. Tiemair, 91 Kan. 842, 139 P. 362; Brager v.Friedenwald, 128 Md. 8, 97 A. 515, 526; Klyce v. Gundlach (Tex.Civ.App.), 193 S.W. 1092; Lembeck v. Gerken, 86 N.J.L. 111,90 A. 698.)

Plaintiff suggests for the first time in his brief herein that he abandoned the property. It is clear he did not. (1 C.J. 6 et seq.) He remained upon the land until he was forced therefrom by the decree of foreclosure.

The only remaining action which could, in any event, be brought by plaintiff is an action for damages. It is clear that the action herein is not of that character. Should it be so considered, it is clear that the complaint is equally deficient upon such theory as upon the others. On September 6, 1927, the plaintiff, Matthiew H. Friedrichsen, commenced action against the defendant, Eugene F. Cobb, to recover the sum of $13,628.97, alleged to have been paid under, or paid out because of, a written contract for the purchase by plaintiff from the defendant of certain ranch property in Judith Basin county. A general demurrer to the complaint was sustained, and, plaintiff refusing to plead further, judgment of dismissal was entered in favor of defendant, and from this judgment plaintiff has appealed. The only question presented is whether or not the complaint states facts sufficient to constitute a cause of action.

Briefly summarized, the complaint alleges the following facts: 1. In March, 1918, plaintiff was a postal clerk with no knowledge of farming or farming conditions in Montana; in order to induce him to enter into a contract for the purchase of certain lands, defendant represented to him that he (the defendant) was the owner of certificates from the state for the purchase of the lands, which were of the richest in the state, containing only sufficient gravel to be advantageous, and would raise from 40 to 50 bushels of the best wheat to the acre, and the climatic conditions in the section were favorable and the rainfall abundant to insure crops. Plaintiff relied upon these representations, and purchased the lands under contract calling for a down payment of $1,000 and the payment of $3,000 on May 15, 1918, the payment to the state of defendant's remaining deferred payments, amounting to $3,723, and payment of the balance of the purchase price, or $20,160, from the crops raised during an indefinite period of years. While the contract was silent as to when the certificates and the assignment thereof were to be placed in escrow, the agreement was that this should be done when the payment was made on May 15, 1918. That plaintiff entered into possession of the premises on March 23, 1918, under the contract, and continued in possession until November 2, 1925. That all of the representations made were false, and the certificates were not placed in escrow until June 15, 1924. That plaintiff rescinded and terminated the contract on the date last mentioned, and that defendant foreclosed the contract and caused a judgment of foreclosure to be entered on November 2, 1925. That the allegations of the complaint and the testimony adduced on the foreclosure proceedings were false. It is then alleged that "plaintiff gives for his reason for not having sought to obtain his rights with respect to said transactions that he went broke in farming said lands, and that he has since been financially unable to defend said foreclosure suit or sooner seek to obtain redress by a separate action."

It will be seen that this complaint intermingles allegations which form the basis of an action for the rescission of the contract and one for breach thereof; it then shows laches on the part of the plaintiff and the adjudication of the rights of the parties under the contract and seeks to evade these bars to maintaining the action by alleging that plaintiff was financially unable to protect his rights and that defendant committed perjury in obtaining the judgment of foreclosure of the contract.[1] Nevertheless, on general demurrer, the allegations of the complaint must be taken as true; all facts reasonably to be inferred from, or implied in, those alleged, must be treated as actually alleged (Ray v. Divers, 72 Mont. 513, 234 P. 246;Grover v. Hines, 66 Mont. 230, 213 P. 250; Connelly Co. v. Schlueter Bros., 69 Mont. 65,220 P. 103); and, if the complaint states facts sufficient to constitute a cause of action on any theory, it is good as against a general demurrer (Awbery v. Schmidt, 65 Mont. 265, 211 P. 346;Anderson v. Border, 75 Mont. 516, 244 P. 494; Calvert v.Anderson, 73 Mont. 551, 236 P. 847).

Does this complaint, then, state facts sufficient to entitle[2] plaintiff to any relief? One in the situation in which plaintiff alleges he found himself prior to June 15, 1924, has an election of remedies. "He may stand upon the contract and bring an action for damages or he may rescind the contract, returning all of value he has received, and receive whatever of value with which he has parted. He may elect to pursue either course, but he cannot pursue both of them. In case he desires a rescission of the contract, he must act promptly upon the discovery of the facts which entitle him to rescind and he is aware of his right to rescind." If he does not restore what he has received he must offer to do so upon condition that the other party does likewise. (Section 7567, Rev. Codes 1921; Smith v. Christe, 60 Mont. 604,201 P. 1011; Como Orchard Land Co. v. Markham,54 Mont. 438, 171 P. 274.)

As plaintiff alleges that he farmed the land year after year[3] from 1918 on, he must have discovered the facts with relation to the condition of the soil, the climate, and amount of rainfall, and wheat the land would produce long prior to his tendered rescission in June, 1924, and he does not bring himself within the provision that one must "act promptly" (sec. 7567) and the decisions thereunder (Ott v. Pace, 43 Mont. 82,115 P. 37; Edwards v. Muri, 73 Mont. 339, 237 P. 209), and, even had the tender been timely, the act was of no avail, as plaintiff did not keep the tender good by removal from the premises (Fontaine v. Lyng, 61 Mont. 590, 202 P. 1112; Smith v.Christe, above). The complaint does not, therefore, state a cause of action for rescission on the ground of misrepresentations.

2. It is urged that the defendant breached the contract by[4] failure to deposit the certificates and assignment thereof in escrow in 1918, as agreed and that time was of the essence of the contract. Plaintiff, however, waived strict compliance with the terms of the contract or agreement by remaining in possession after the breach and merely insisting, from time to time, that the vendor place the instruments in escrow, up to June 15, 1924, when he tendered his rescission of the contract. Had plaintiff then abandoned the premises and repudiated the contract and thus kept his rescission good, it might be said that, on the ground now considered, the complaint states a cause of action (Hogsed v. Gillett, 60 Mont. 467, 199 P. 907), if no effect is given to the allegation that the contract was thereafter foreclosed by the defendant; but the complaint discloses on its face that he did not do so, and, under the authorities cited above, he waived his right to rescission on this ground as well as on those grounds heretofore considered.

Whether time is or is not of the essence of a contract is[5] material only where the defaulting party has, after the expiration of the time limit, made a tender which was refused by the other party. (Cook-Reynolds Co. v. Chipman, 47 Mont. 289,133 P. 694.)

In this complaint it is alleged that, on June 15, 1924, the defendant finally placed the instruments in escrow, and, as plaintiff waived the right to rescind, his continuing in possession would constitute an acceptance rather than a rejection of defendant's performance of the alleged agreement. It is clear from the allegations of the complaint that the time for performance of the contract, by conveyance of the certificate, had not arrived on June 15, 1924, when the plaintiff made his tender of rescission, nor yet at the time of trial. Under the[6] circumstances shown, defendant was not required to have title to the certificates at any time prior to the time when he was, under the contract, required to convey title thereto (Wilson v. Corcoran, 73 Mont. 529, 237 P. 521;Hollensteiner v. Anderson, 78 Mont. 122, 252 P. 796), and, as he placed the certificates and assignment thereof in escrow prior to the time limit and before this plaintiff effected a rescission of the contract for his delinquency, the complaint does not state a cause of action on the ground now considered.

3. Counsel for plaintiff asserts that, as in drafting the[7] complaint he used the word "terminated" in connection with "rescinded and canceled" in alleging rescission on June 15, 1924, the complaint should not be considered as alleging mere cancellation, but should be taken as alleging an abandonment of the contract, and that, therefore, the rules above announced should not be applied; he relies upon expressions contained in the decision in Cook-Reynolds Co. v. Chipman, above, wherein it is held that there may be an abandonment of a contract without rescission and recovery of compensation on breach of the contract, on the "acceptance of the situation which the wrongdoing of the other party has brought about."

In that case it is held that, on declaring a forfeiture of a contract for sale of lands, thus terminating the contract, the party against whom forfeiture is declared may be relieved from the forfeiture under the provisions of section 8658, Revised Codes of 1921, on showing that he is equitably entitled to such relief, if his breach of duty was not grossly negligent, wilful, or fraudulent. Therein it was shown that the property could be returned in undiminished value, and the value of its use was readily ascertainable, and the applicant for relief was willing that the vendor should have full compensation for the use of the property and all damages sustained, and it further appeared that the vendee kept possession and attempted to fulfill the contract only at the solicitation of the vendor and on waiver of strict compliance with the terms of the contract. Here there is no allegation of offer to do equity even in the payment of rent for the seven years plaintiff had possession of the property, or that the property could be returned in undiminished value. Plaintiff seeks to recover the whole amount he paid, including taxes paid on the ranch while in his possession. In order to invoke the protection of section 8658 above, a party must set forth facts that will appeal to the conscience of a court of equity. (Fratt v. Daniels-Jones Co.,47 Mont. 487, 133 P. 700; Donlan v. Arnold, 48 Mont. 416,138 P. 775; Suburban Homes Co. v. North, 50 Mont. 108, Ann. Cas. 1917C, 81, 145 P. 2.)

The complaint herein does not state facts sufficient to entitle plaintiff to equitable relief from forfeiture.

4. The sole question remaining is as to whether or not the complaint states a cause of action for damages on the theory that plaintiff elects to stand upon the contract and sue for the loss occasioned by defendant's breach thereof.

Under this theory it might be held that facts sufficient to constitute an action at law are stated, were it not for the fact that plaintiff himself sets up the "foreclosure of the contract," resulting in judgment in favor of the defendant here. The rule is[8] too well established to need citation of authority that a judgment cannot be attacked collaterally, and the allegation that the complaint and testimony on which the judgment is based are false is unavailing for any purpose. Nor does the allegation that plaintiff "had gone broke farming" the land furnish any legal excuse for not having defended in the foreclosure proceeding.

The judgment by which the contract was "foreclosed" is final and conclusive here, unless plaintiff's right to damages is not barred thereby.

We must presume that this plaintiff was duly served with process in the foreclosure proceeding and had the opportunity to answer therein. In fact, in the brief filed by his counsel, it is stated that he appeared and demurred to the complaint.

Section 9137, Revised Codes of 1921, declares that an answer[9] must contain (1) denials, etc.; (2) "a statement of any new matter constituting a defense or counterclaim." Section 9138 defines a counterclaim as (1) a cause of action arising out of the contract or transaction set forth in the complaint as a foundation of plaintiff's claim, or connected with the subject matter of the action, and declares that a counterclaim "must tend, in some way, to diminish or defeat plaintiff's recovery." The purpose of the statute permitting the filing of a counterclaim is to enable and require the parties to adjust in one action their various differences growing out of any given transaction (Mulcahy v. Duggan, 67 Mont. 9, 214 P. 1106), and to prevent a multiplicity of suits (Scott v. Waggoner,48 Mont. 536, L.R.A. 1916C, 491, 139 P. 454; Kinsman v.Stanhope, 50 Mont. 41, L.R.A. 1916C, 443, 144 P. 1083), and therefore, if the defendant omits to set up a counterclaim in the case mentioned in the first subdivision of section 9138 above, he cannot thereafter maintain an action therefor against the plaintiff in the action (sec. 9144, Rev. Codes 1921).

In the foreclosure proceeding, the foundation of the plaintiff's cause of action was the contract which this plaintiff now alleges was breached by his adversary, and there is no question but that the cause of action which it is here attempted to maintain is one "arising out of the contract or transaction set forth in the complaint" in that proceeding. The question, then, is as to whether or not, had this alleged cause of action been set up as a counterclaim to the claim of plaintiff in that proceeding, it would have tended to diminish or defeat a recovery therein.

It has been suggested that a counterclaim will not lie where the plaintiff is entitled to the relief sought in any event, although the defendant in the action may have a good cause of action for a money judgment against the plaintiff, since such a situation would call for the entry of two separate judgments in the action, whereas the law contemplates but one judgment disposing of the issues. On this theory it has been held, and properly held, that a counterclaim for money is not available in an action (1) for forcible entry (Spellman v. Rhode, 33 Mont. 21,81 P. 395); (2) on claim and delivery (Osmers v. Furey,32 Mont. 581, 81 P. 345); or (3) in an injunction proceeding (Cook-Reynolds Co. v. Wilson, 67 Mont. 147, 214 P. 1104) — as in each of such cases the plaintiff but seeks the possession of his property, and a claim for money does not tend in any way to defeat or diminish his recovery.

It may be that, under the rule above announced, had the plaintiff here answered in the foreclosure proceeding, admitting that the plaintiff there, this defendant, was entitled to have his title to the lands quieted and to their possession and then attempted to interpose a counterclaim for the money paid under the contract, his counterclaim would have been stricken, but even in such a case it is clearly intimated in Suburban Homes Co. v.North, above, on which plaintiff relies as holding that such a judgment as was entered in the foreclosure proceeding but cancels the contract and "leaves the question as to whether the defendant is entitled to recover his payments or any part of them, wholly unadjudicated," that the defendant should set up his claim against the plaintiff in the original action. The quoted phrase is used in that decision only in stating the purpose of the complaint in the action to quiet title. Turning then to the answer interposed, the court held that "the answer does not allege facts to justify, nor does the prayer demand, affirmative relief," and then said: "In order to avoid the consequences of his default, we can see no reason why the defendant should not be required to bring himself within the equity of the statute as interpreted in Cook-Reynolds Co. v. Chipman; Fratt v.Daniels-Jones Co., and other cases cited above."

But whether or not a judgment canceling a contract or "foreclosing" it would leave the question of right to recover payments "wholly unadjudicated" is not now before us. It must be[10] remembered that we are but determining the sufficiency of the complaint in the instant case, and have already held that it does not state facts sufficient to entitle plaintiff to equitable relief by the return of his payments, or any part thereof, and are now considering the complaint from the standpoint of an action at law for damages resulting from the fact that the lands purchased were not as valuable as they were represented to be, and the purchaser, electing to stand upon the contract and retain the property, seeks to recover the difference between the purchase price and the actual value of his lands.

As the contract was already wiped out, plaintiff was in no position to stand upon it; but at the time the action to foreclose it was instituted he was in position to assert his claim, and, had he set up the counterclaim in that action which he now sets up as a cause of action, it would have been sufficient to have completely defeated the claim of the plaintiff under the contract, and, on proof thereof, would have resulted, not in two judgments, but in a single judgment in favor of the defendant, this plaintiff, to the effect that he was entitled to retain the property under the contract and recover such damages as his evidence warranted. Such a judgment is warranted under section 9140, Revised Codes 1921.

The cause of action for damages, therefore, falls squarely within the provisions of the statutes relating to counterclaims, and hence is barred by the judgment of foreclosure under the provisions of section 9144, above.

Counsel for plaintiff cites Hillman v. Luzon Cafe Co.,49 Mont. 180, 142 P. 641, and Kauffman v. Cooper, 39 Mont. 146,101 P. 969, as stating a rule contrary to our conclusion, but in each of those decisions it was held that the alleged counterclaim did not come within the first provision of the statute on counterclaims (section 9138, above), and there, if a cause of action existed, it would not have been barred in either case, as section 9144, above, applies only to "the cases mentioned in the first subdivision of section 9138," and nothing said in either decision militates in any manner against our conclusion.

The complaint under consideration does not state a cause of action on any theory, and therefore the demurrer thereto was properly sustained.

The judgment is affirmed.

MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES GALEN and FORD concur.