Davis v. C. E. Downie Investment Co.

On March 25, 1927, defendant vendee entered into a contract with plaintiff vendor for the purchase of certain land in King county. The contract provided for payments of the purchase price in installments, and for delivery of deed to the vendee on payment of the last installment. Time was made the essence of the contract, which further provided for cancellation of the contract and the forfeiture of the vendee's rights thereunder in the event the vendee breached any of the terms of the contract. The pertinent stipulations read as follows:

"The seller agrees, on full payment of said purchase price in manner hereinbefore specified, to make, execute, and deliver to the purchaser a good and sufficient deed of said described premises.

"Time is of the essence of this contract, and in case the purchaser shall fail to make any payment of the said purchase price, promptly at the time the same shall fall due as hereinbefore specified, or promptly to perform any covenant or agreement aforesaid, the seller may elect to declare a forfeiture and cancellation of this contract, and upon such election being made all rights of the purchaser hereunder shall cease and determine, and any payments theretofore made hereunder by the purchaser shall be retained by the seller in liquidation of all damages sustained by reason of such failure, and no waiver by the seller of any default on the part of the purchaser shall be construed as a waiver of any subsequent default."

On May 2, 1932, at which time the final payment due March 25, 1932, had not been paid and the vendee had failed to pay interest and two years' taxes, the vendor notified the vendee of her election to declare a forfeiture and cancellation of the contract, effective May 12, 1932, unless the vendee paid the amounts due. That letter reads as follows:

"You are hereby notified that you are in default . . . in that you have failed to pay the taxes, interest, and the principal payment due March 25, 1932.

"You are further notified that unless you pay said sums on or before May 12, 1932, the seller will elect and does hereby elect to declare a forfeiture and cancellation of said contract and of all of your rights thereunder."

Early in August, 1932, more than two months subsequent to date of notice of forfeiture of the contract, the vendor tendered to the vendee, who rejected same and refused to pay the balance due under the contract, a deed to the subject-matter of the contract. A few days later, this action, based upon the forfeiture notice given in May, 1932, tender of deed and demand for, and refusal of, payment of balance due, was instituted against the vendee by the vendor, who prayed "said contract be cancelled and terminated" and that title to the land in question be quieted in her.

By amended answer, the vendee admitted receipt of notice of intention to declare a forfeiture, and further admitted that, thereafter, the vendor tendered a deed to the vendee and demanded payment of the balance due under the contract. Defendant vendee also set up three affirmative defenses and a cross-complaint. The first affirmative defense pleaded was an extension of time for payment. The second affirmative defense alleged that, at the time of the demand on May 2, 1932, and service of notice of intention to declare a forfeiture, and on May 12, 1932, the date on which the forfeiture was to occur, plaintiff vendor did not tender to defendant vendee any deed to the premises. For a third affirmative defense, defendant vendee alleged that the tender of deed and demand for balance due made August 5, 1932, constituted an election on the part of plaintiff vendor to waive notice of forfeiture. By its cross-complaint, in which it prayed recovery of the full amount paid by it on the purchase price of the property, defendant vendee alleged that, if plaintiff's tender of deed and demand for payment on August 5, 1932, did not constitute a waiver of notice of forfeiture, it elected to treat the contract as mutually rescinded by reason of plaintiff's acts set forth in the first and second affirmative defenses of defendant vendee's answer.

Plaintiff filed a demurrer to defendant's affirmative defenses and cross-complaint. Joined with her demurrer was plaintiff's motion to strike the affirmative defenses and cross-complaint, and to require defendant to elect "as to whether it claims the right to purchase the property in the complaint described or the right to recover payments made under the contract." Plaintiff also moved that, in the event the foregoing motions and demurrer were denied, the defendant be required to make its first affirmative defense more definite and certain by setting forth the various dates to which payment was extended.

Hearing before a court commissioner resulted in overruling of the demurrer, denial of the motion to strike the cross-complaint, and granting of the motion to make the first affirmative defense more definite and certain. Written notice was served by defendant on the plaintiff

". . . that it elects to and does hereby abandon the first affirmative defense in the amended answer, affirmative defense and cross-complaint heretofore served and filed in this action and consisting of three paragraphs and further abandons that portion of the second affirmative defense reading as follows:

"``Defendant herewith refers to paragraph I, II and III of its affirmative defense and makes them respectively paragraphs I, II and III hereof, as though fully set forth herein.'

"This election and abandonment is in compliance and accordance with the ruling made by the Hon. Chester A. Batchelor, one of the Judges of the above entitled court upon the motion of the plaintiff herein for the revision of the order of the Court Commissioner heretofore entered in this cause upon the motion to strike answer and for default of the defendant."

That is to say, the defendant abandoned the defense of extension of time of payment, and stood on its second affirmative defense,

"That at the time of the demand on May 2, 1932, and service of notice of intention to declare a forfeiture unless the defendant paid the taxes, interest and all of the unpaid principal on said contract, the plaintiff did not tender to the defendant any deed to said premises, nor was there such tender made on or prior to May 12, 1932, the date on which said forfeiture was to occur."

No mention is made in defendant's notice of election above quoted of the third affirmative defense that plaintiff's tender, on August 5, 1932, of deed and demand for payment of balance due under the contract constituted an election by plaintiff to waive the notice of forfeiture given to the defendant in May, 1932.

When the cause was called for trial, counsel for defense stated that defendant had withdrawn its first affirmative defense,

". . . but claims that the contract between the plaintiff and defendant was wrongfully terminated by the plaintiff, and that because of such wrongful termination the defendant elects to declare the contract mutually rescinded and is demanding that the plaintiff return to the defendant all of the payments made by it, on the ground that the contract has been mutually rescinded."

Counsel for plaintiff stated that, as the cross-complaint was stricken by the court commissioner, the question — the issue raised by the cross-complaint — of the right of the defendant to the return of the payments made to the plaintiff on the contract was not before the court. An examination of the record disclosing that the cross-complaint was stricken by the court commissioner, counsel for defendant asked leave to amend its answer as set forth in the above-quoted statement, as counsel

". . . was not aware until the case was called for trial a moment ago that the cross-complaint had been stricken, but I am satisfied that the court commissioner was in error in striking it and now ask that we be permitted to amend our answer by setting up this cross-complaint, and that we be permitted to offer evidence in support thereof."

"By the Court: It is barely possible Mr. Froude that the Court Commissioner should not have stricken the cross-complaint. The record shows that he overruled the demurrer to it and that there is an order entered striking the cross-complaint, but I do not like to interfere with that order at this time.

"By Mr. Froude: Yes, I will admit that the record shows that the cross-complaint had been stricken by the Court Commissioner, but I was not aware of that until a few moments ago. I think the court could properly at this time permit the cross-complaint to be reinstated.

"By the Court: I do not think I will interfere with the order of the Court Commissioner.

"By Mr. Froude: Will Your Honor enter an order that our motion to amend the answer by setting up this cross-complaint is denied, but is without prejudice to our right to maintain a separate action upon such claim, if we desire to do so?

"By the Court: Yes, the record will show that I deny your motion to amend your answer but that it shall be without prejudice to the right of the defendant to bring a separate action to recover upon the theory of a mutual rescission."

Defendant's request, repeated at the conclusion of plaintiff's case, to interpose the cross-complaint was denied. At the conclusion of the trial, the court said:

"It seems to me that no harm will be done to either party if this case is postponed thirty days. I am therefore going to postpone consideration of this case for a period of thirty days and see what develops during that period. If during that time the balance of the purchase price is not paid, or some other adjustment made between the parties, I will enter judgment for the plaintiff at that time."

Plaintiff was not willing to abandon the position she had taken that the contract had been cancelled and all rights of defendant thereunder had been forfeited. Defendant was unwilling to recede from its position that the contract had been mutually rescinded. Negotiations were fruitless. At the end of the thirty-day period, the trial court found:

"That defendant has failed and refused to comply with the terms of said contract of sale and has neglected to make the payments therein provided at the times therein stated, or at all, and all of the payments which defendant agreed to make were past due prior to the bringing of this action and the time within which defendant might make said payments and receive deed to said property had elapsed. That time of payment was of the essence of said contract. . . .

"That in May, 1932, there were taxes upon said property for two years unpaid and delinquent and the taxes thereon for 1931 were unpaid, interest in the sum of $330 was due under said contract and unpaid, and $11,000 of the principal of said contract was due and unpaid, and plaintiff notified defendant in writing that unless the amounts due under said contract were paid on or before May 12, 1932, plaintiff elected to declare a forfeiture and cancellation of said contract. That defendant neglected and refused to pay said sums or the balance due upon said contract. That plaintiff has offered and tendered conveyance of said property to defendant as in said contract provided and has demanded of defendant payment of the balance due under said contract."

Based on the foregoing findings, the trial court entered judgment terminating and canceling the contract, quieting title to the property in question in the plaintiff and forfeiting to plaintiff all payments made by defendant to plaintiff under the contract. From that judgment, the defendant has appealed.

Appellant's second affirmative defense and its cross-complaint were consistent with each other, and the trial court should have permitted the appellant to interpose the cross-complaint. If, as the second affirmative defense alleges and the undisputed evidence establishes, the deed was not tendered as the law requires, appellant was entitled, as it sought by its cross-complaint, to a judgment for the amount paid by it to respondent prior to the termination of the contract in May, 1932. The determinative question in the case was whether there was a tender of deed and demand for payment of balance due when respondent elected to declare a forfeiture of the contract. The facts are summarized as follows:

Appellant vendee entered into a contract with respondent vendor for the purchase of real estate. That contract stipulated for the payment of the purchase price in installments and for delivery of a deed on the payment of the last installment. Time was made the essence of the contract, and it was agreed between the parties that, in the event of the breach by the vendee of any of the terms of the contract, the vendor could declare a forfeiture of the contract and retain all payments made by the vendee on the contract.

On May 2, 1932, the final payment under the contract was overdue, and interest and taxes were unpaid. On that date, the vendor gave written notice to the vendee that, unless within ten days it paid the balance due, the vendor "will elect and does hereby elect to declare a forfeiture and cancellation of said contract and of all of your rights thereunder." Not until more than two months thereafter did the vendor tender a deed to the vendee. Rejection by the vendee of the deed and refusal to pay the balance due was followed by this action, trial of which resulted in favor of respondent, as recited above.

A contract for the purchase of real estate, which stipulates for payments of the price in installments, and for the delivery of the deed on the payment of the last installment, makes the making of the last payment and the delivery of the deed mutual, concurrent and dependent obligations, within the rule that, where such obligations exist, neither party can put the other in default or claim a forfeiture without first tendering performance on his part. Christy v. Baiocchi, 53 Wash. 644, 102 P. 752;Lewis v. Wellard, 62 Wash. 590, 114 P. 455; Bendon v.Parfit, 74 Wash. 645, 134 P. 185.

A tender of the deed and payment of the last installment are dependent and concurrent. The tender of the deed is as much a part of the contract as the payment of the last installment, therefore the vendor can not enforce a forfeiture without tender of performance on his part. Reese v. Westfield, 56 Wash. 415,105 P. 837, 28 L.R.A. (N.S.) 956; Carter v. Miller, 155 Wash. 14,283 P. 470; Weisberger v. Smith, 175 Wash. 292,27 P.2d 324; Stusser v. Gottstein, 178 Wash. 360, 35 P.2d 5.

"If the case of Stein v. Waddell and the succeeding cases to which we have referred have been hitherto misunderstood, we desire now, for the sake of certainty, to lay down the rule that, where land is sold under a time contract calling for payment by installments, and every installment has been paid except the last one, the vendor may, if he act with reasonable promptness, declare a forfeiture, unless by the terms of the contract he has agreed to perform some act necessary to the complete performance of his agreement, as, for instance, the giving of an abstract or the tender of a deed, in which event his power to forfeit depends upon his offer and ability to perform; for, as this court has said, his duty to tender performance depends upon, and is concurrent with, the duty of the vendee to meet the final payment.

"While we admit that the conditions providing for forfeiture in contracts of this character are usually held to be for the benefit of the vendor, and we have been hitherto, and are now, willing to give the vendor the full benefit of all the conditions of his contract, and say that all payments prior to the last payment are conditions precedent, we have no sympathy with the holding of some courts to the effect that the whole duty is upon the purchaser, and unless he tenders the last payment the vendor is entirely released from any obligation to convey or tender conveyance. The covenants are independent so long as no duty is imposed on the vendor, but if any covenant puts both parties to action and concurs in time, it must be held to be dependent and concurrent. It seems that the logical sequence of the rule allowing a forfeiture for intermediate payments without tender of performance is that the last payment should not be forthcoming until the abstract and deed are tendered, when it is so provided in the contract; for it is primary law that a failure of title will relieve the vendee. Warvelle, Vendors, 813.

"There is nothing in the assertion that any other rule will interfere with, or destroy, or invite a breach of, the contract as the parties have made it. What we have undertaken to show is that a tender of performance when stipulated in the agreement, as well as a tender of payment, is a part of the contract; the two engagements make the contract; the one is dependent on the other." Reese v. Westfield, 56 Wash. 415, 105 P. 837, 28 L.R.A. (N.S.) 956.

"Where covenants are dependent and concurrent, neither party may compel performance by the other without performance on his own part; and where either takes the initiative to compel performance by the other, he must show that he has first made proper tender of that which was to be performed by him." Stusserv. Gottstein, 178 Wash. 360, 35 P.2d 5.

Where the execution and delivery of the deed are to be contemporaneous with the payment of the balance of the purchase price, the vendor can not put the vendee in default until he tenders a proper conveyance and demands payment of the purchase price, though time is made of the essence of the contract and the vendor is given the right to forfeit the contract and retain what has already been paid.

"Where by the terms of the contract time is of the essence thereof, and the giving of a deed and the payment of the purchase money are not mutual, concurrent, and dependent covenants, the tender of a deed is not a condition precedent to the right of the vendor to rescind the contract for nonpayment of the purchase money or an installment thereof at the time stipulated. But, where by the terms of the contract the covenants for conveyance and payment of the purchase price are concurrent, mutual, and dependent, the vendor cannot rescind for nonpayment of the purchase money at the time stipulated unless he tenders a conveyance in accordance with the provisions of the contract, and demands performance of the purchaser; but a tender of a deed and a demand for payment, although subsequent to the date specified in the contract, entitle the vendor to forfeit the contract." 66 C.J., p. 760, § 345.

After the vendor's election to rescind or cancel the contract and her notice of intention, the contract was terminated. When she elected to forfeit the contract and failed to tender a deed, she breached a covenant of the contract, and her attempted forfeiture constituted a wrongful termination of the contract. Such wrongful termination of the contract entitled the vendee to specific performance of the contract on its tender of performance, or to recovery from the vendor of the amounts paid on the contract prior to date of such termination of the contract. The rights of the parties were fixed May 12, 1932, the date the forfeiture became effective. A subsequent tender of deed could not divest the vendee of its rights fixed at that time.

I repeat, the covenant to pay and the covenant to deliver the deed were mutual and concurrent, hence a forfeiture could not be declared without a deed first being tendered and demand made for payment of balance due on the contract. The contract was terminated, and the amount paid by the vendee under its provisions was not forfeited. That being so, the vendee's right to recovery of that sum follows as a matter of course. The following language in Gibson v. Rouse, 81 Wash. 102,142 P. 464, where we affirmed a judgment in favor of a vendee in an action to recover payments made upon a real estate contract which had been wrongfully forfeited, is applicable in the case at bar:

"The appellants urge that, though there had been no forfeiture, the respondent was not entitled to a rescission and to a recovery of her payments because she herself was in default and made no tender of payment. While the evidence of tender of the amount due on both contracts was not convincing, it seems clear that a tender was offered as to the larger contract and refused. But we consider the question of tender immaterial. The appellants, having withdrawn the contracts from escrow, without right and while they were in no position to have performed the contracts themselves, by a conveyance of the property free from incumbrance, had, in effect, rescinded the contracts on their own part. They cannot complain that the respondent accepted that act as a rescission on their part and claimed the right to a return of the money which she had paid. Having repudiated the contract without right, they cannot complain that the respondent met them on the ground which they themselves had elected to occupy. Having themselves rescinded the contract, the respondent was relieved from an offer of performance on her part. We have held, in a case where a vendor had himself repudiated the contract, that a tender of performance by the vendee was not a condition precedent to an action for specific performance. Bruggemann v. Converse, 47 Wash. 581,92 P. 429. A fortiori, it would seem that, under like circumstances, a tender of performance by a vendee is not a condition precedent to the maintenance of an action for a return of the purchase money paid."

See, also, Finch v. Sprague, 117 Wash. 650, 202 P. 257;Cornely v. Campbell, 95 Ore. 345, 186 P. 563, 187 P. 1103;Maffet v. Oregon C.R. Co., 46 Ore. 443, 80 P. 489.

The rights of the appellant vendee and respondent vendor were fixed on May 12, 1932, the date the forfeiture declared by respondent became effective. Subsequent withdrawal by respondent of that declaration or a later tender by her of deed would not operate to divest the appellant of its rights under the contract.

"Treating the defendant's [respondent vendor's] declaration that the contract is canceled, and no longer of any force or effect, as an abandonment, the plaintiff might himself abandon, and, the contract having thus come to an end, he might very well, as he has done, sue at law to recover what he has paid. Glock v. Howard W. Colony Co., 123 Cal. 1, 10 (55 P. 713, 719, 43 L.R.A. 199, 69 Am. St. Rep. 17). Mr. Justice Henshaw, in further consideration of this case, says: ``There have been many cases before this court involving the rights of parties to agreements for the sale and purchase of real estate, in which it has been held that, after the parties have rescinded the agreement or mutually agreed to abandon, the vendee may recover the money which he paid in part performance of his contract'; citing cases. This court, however, has settled the principle by the language of Mr. Chief Justice Moore in Graham v. Merchant,43 Or. 294, 304 (72 P. 1088, 1090), as follows: ``When a vendor abandons his contract to convey, the vendee, in his choice of remedies, may elect to rescind the contract, and thereupon maintain an action at law to recover what he has paid thereon as money had and received.' Thus it is that an abandonment by one party may be treated as a proposition to rescind by the other, and thereupon he may also abandon, and thus arrive at a mutual agreement to rescind, and the law so treats the correlative acts of the parties: 2 Warvelle, Vendors (2 ed.), § 826; Cummings v.Rogers, 36 Minn. 317 (30 N.W. 892); Wheelden v. Fiske,50 N.H. 125." Maffet v. Oregon C.R. Co., 46 Ore. 443, 80 P. 489.

See, also, Finch v. Sprague, 117 Wash. 650, 202 P. 257.

We should be mindful of rules of law and endeavor to adhere thereto, rather than attempt to rescue persons in a given case from a situation in which they find themselves because of their failure to abide by the terms of their contracts.

It is the general rule, and one to which we are committed, that, when the covenants to convey and to pay are dependent, a tender of a conveyance is necessary to an action for the purchase price. Not only must the tender be made before the commencement of an action to enforce the terms of the contract, but the tender must be made as the contract provides. Where neither party offers to perform or demands performance at the time specified, both parties are in default. In such case, the vendee, to be entitled to rescind the contract and to recover the purchase money, must tender the balance due and demand a conveyance of the premises. The vendor, to be entitled to terminate the contract and keep the land and all payments made on the purchase price by the vendee, must tender to the vendee a conveyance of the premises and demand payment of the amount due on the contract. If the vendor, as in the case at bar, elects, under the forfeiture provision of the contract, to terminate the contract and keep the land and the payments made thereon, and at the time of such declaration of forfeiture fails to tender a deed and demand payment of the balance due under the contract, the vendee is entitled to an accounting for the amount paid on the purchase price, but the vendee would not be entitled to such accounting if the vendor tendered performance of the contract and brought an action to compel its specific performance.

The failure to tender a conveyance at the time of declaration of forfeiture constitutes a rescission, and not a mere enforcement of the forfeiture provision of the contract. The vendor in such case treats the contract as abandoned by the vendee, and the purchase money received by him as forfeited. If proper notice of forfeiture (deed tendered, etc.,) had been given by the vendor, the rights of the vendee under the contract, in view of its default, would have been so fixed that the vendee could not, after the forfeiture date, by a tender of the balance due on the purchase price, put the vendor to her election either to perform or account for the amount paid on the purchase price. In the case at bar, the vendor breached the terms of the contract. She rescinded the contract, in which rescission or termination the vendee acquiesced; therefore, the vendor should be required to account to the vendee for the amount received on the purchase price.

The trial court carefully saved to appellant the right "to bring a separate action to recover upon the theory of a mutual rescission." The trial court erroneously refused to permit the interposition of appellant's cross-complaint. The cause should be remanded, with direction to the trial court to determine the amount paid by appellant on the contract and to enter judgment in appellant's favor therefor.

MAIN, MITCHELL, and HOLCOMB, JJ., concur with MILLARD, J.