Hinson v. Jefferson

210 S.E.2d 498 (1974) 24 N.C. App. 231

Barbara H. HINSON
v.
William W. JEFFERSON et al.

No. 743DC754.

Court of Appeals of North Carolina.

December 18, 1974.

Everett & Cheatham by C. W. Everett, Bethel, for plaintiff appellant.

Gaylord & Singleton by Mickey A. Herrin, Greenville, for defendant appellees.

BRITT, Judge.

Did the trial court err in entering judgment for defendants? We hold that it did.

Plaintiff argues that judgment should have been rendered in her favor for the reason that the deed from defendants to her constituted a contract, that a mutual mistake of a material fact existed at the time the contract was entered into and consummated, and that the mutual mistake was accompanied with a failure of consideration.

While our research has failed to disclose a case in this jurisdiction directly in point with the instant case, we think a rational extension of the principle established in MacKay v. McIntosh, 270 N.C. 69, 153 S.E.2d 800 (1967), would be proper. In MacKay, plaintiff owner and defendant purchaser entered into a contract for the sale and purchase of a lot upon which was a brick building; defendant's sole interest in the property was to use the building as a retail store and she so advised plaintiff's agent; defendant was induced to sign the contract by the agent's representation that the property was in a zone where retail business was permitted; and both the agent and defendant acted pursuant to their mistaken belief that the representation with regard to zoning was true when in fact it was false. The owner brought suit for specific performance. In affirming a judgment for defendant, the Supreme Court said (page 73, 153 S.E.2d page 804):

Defendant does not seek to contradict the writing or to enforce a parol agreement. She contends that, since Both Mrs. Cooper (plaintiff's agent) and defendant negotiated and acted in the honest but mistaken belief the subject property was in fact zoned for business, no contract, either written or oral, resulted; and that, there being no agreement, she is not obligated to purchase property which cannot be used for a retail store.

"The formation of a binding contract may be affected by a mistake. Thus, a contract may be avoided on the ground of mutual mistake of fact where the mistake is common to both parties and by reason of it each has done what neither intended. Furthermore a defense may be asserted when there is a mutual mistake of the parties as to the subject matter, the price, or the terms, going to show the want of a consensus ad idem. Generally speaking, however, in order to affect the binding force of a contract, the mistake must be of an existing or past fact which is material; it must be as to a fact which enters into and forms the basis of the contract, or in other words it must be of the essence of the agreement, the sine qua non, or, as is sometimes said, the efficient cause of the agreement, and must be such that it animates and controls the conduct of the parties." 17 Am. Jur.2d, Contracts § 143.

A deed, duly signed, sealed and delivered, is an executed contract. Edwards v. Batts, 245 N.C. 693, 97 S.E.2d 101 (1957). While the holding in MacKay dealt with an executory contract, we think the principle is also applicable to an executed contract. "A mutual mistake of such a character as to affect the validity of an executory agreement ordinarily affects the validity of an executed agreement." 17 Am.Jur.2d, Contracts, § 143.

It appears to be a generally recognized rule that mere absence of consideration is not sufficient to warrant relief by way of equitable cancellation or recision of an executed contract or deed in the absence of some additional circumstance creating an independent ground for granting cancellation or recision, such as fraud or undue influence; but where a person has been induced to part with something of value for little or no consideration, equity will seize upon the slightest circumstance of fraud, duress, or mistake for the purpose of administering justice in a particular case. 13 Am.Jur.2d, Cancellation of Instruments, § 21, page 515.

With respect to consideration, we find in 13 Am.Jur.2d, Cancellation of Instruments, § 22, pp. 515-6, the following:

Failure of consideration differs from lack of consideration in that it refers to something subsequent to the agreement, and not to something inherent in the agreement itself. Failure of consideration, like lack of consideration, is not generally considered a sufficient ground for equitable cancellation of an instrument in the absence of some additional circumstance independently justifying this relief, such as fraud, duress, or mistake. But, as in the case of lack of consideration, where there is a failure of consideration equity will seize upon the slightest circumstance of an inequitable nature for the purpose of administering justice in the particular case.

And in § 31, pp. 523-4, we find:

Equity may decree cancellation of an instrument on the ground of mistake of fact whether the instrument relates to an executory agreement or to one that has been executed. A mistake warranting cancellation must affect the substance of the contract and be more than a mere incident of the agreement. It must be made to appear that the fact concerning which the mistake was made was one that animated and controlled the conduct of the party on whose behalf the cancellation is sought, and that but for that mistake he would not have executed the instrument involved.. . .

We now apply the stated principles to the facts presented in the case at bar. The inclusion of the restrictive covenants in the deed from defendants to plaintiff leaves no doubt that the parties contemplated that the lot in question would be used solely for residential purposes, and that only a substantial residence would be erected on the lot. After the contract was consummated, it was determined that due to the proximity of the water level to the surface of the lot, and certain drainage difficulties, the lot would not support a septic tank or other on-site sewage disposal system. This being true, and no municipal sewage disposal system being available, there is no feasible way the lot can be utilized for the purpose contemplated by the parties. Neither the plaintiff nor the defendants knew, at the time of the conveyance, that the lot was incapable of supporting a septic tank or other on-site sewage disposal system.

The mistake shared by the parties related to a material fact, one which entered into and formed a basis of the contract, one which was of the essence of the agreement, and one which "animated and controlled" the conduct of the parties. Inasmuch as plaintiff's use of the property is restricted to residential purposes, it is virtually worthless to plaintiff.

In MacKay, the mistake was an unintentional false representation; in this case, the mistake was a false assumption. There is more reason for equity to intervene in this case than there was in MacKay; in that case, the property could have been put to some profitable use but that is not true here. Defendants argue in this case that plaintiff could have determined before consummating the sale that the lot would not support a septic tank or on-site sewage system by having a qualified person perform a soil test. In MacKay, a telephone call to the city hall no doubt would have revealed that zoning regulations would not permit retail business on the subject property.

In 5 Strong N.C. Index 2d, Money Received, § 1, page 524, it is said: "Where a party pays in good faith, in ignorance of the facts, a sum of money for certain property, rights or interests, which in fact are worthless so that there is a total failure of consideration, the money paid may be recovered under the principles of justice. . . ."

We hold that plaintiff is entitled to rescind the contract. Upon tender of a deed to defendants, reconveying to them the lot free of any encumbrances placed thereon since the conveyance by defendants, plaintiff is entitled to recover from defendants the $3,500 purchase price.

The judgment appealed from is vacated and this cause is remanded to the district court for entry of judgment consistent with this opinion.

Remanded.

VAUGHN, J., concurs.

CAMPBELL, J., dissents.