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Docket Number

No. 2 CA-CIV 4469.

Attorney(S)

Jennings, Strouss Salmon by Riney B. Salmon II and Diane K. Geimer, Phoenix, for appellant. Evans, Kitchel Jenckes, P.C. by Jerry W. Lawson and Barbara M. Torrez, Phoenix, for appellee Evans Product Co. James B. Greenwood, Bisbee, and Wallace R. Hoggatt, Tucson, for appellees Boggs.

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Smart Summary

Case Summary: The Willcox Clinic, Ltd. v. Evans Products Company et al., No. 2 CA-CIV 4469 (Ariz. Ct. App. Feb. 15, 1983)

Factual and Procedural Background

On January 26, 1978, appellees Dendy S. Boggs and Martha H. Boggs (sellers) and appellant Willcox Clinic, Ltd. (purchaser or Clinic) contracted for the purchase of real property in Cochise County for $28,000. The contract provided that Boggs warranted title subject only to 1978 taxes, obligations from inclusion in two local districts, and a mortgage in favor of Evans Products. Clinic paid $5,000 down, assumed an outstanding mortgage to Evans Products in the principal amount of $14,203.66, and agreed to monthly installments of $154.34 for the unpaid balance. Boggs agreed to execute a warranty deed and USLife Title Insurance Company issued an owner's policy to Clinic for $28,000, evidencing clear and marketable title subject only to matters in the contract.

On August 2, 1978, FMC Corporation filed a judgment lien foreclosure action against the property based on a 1972 default judgment recorded against Boggs' predecessors. Boggs, Clinic, and Evans Products were defendants in that action. On September 6, 1978, FMC moved for summary judgment, and judgment was entered in April 1979. FMC purchased the property at a sheriff's sale for $25,000 (insufficient to satisfy FMC's judgment of $29,657.20) and Clinic lost its interest in the property.

Clinic then moved for summary judgment seeking rescission based on failure of consideration and breach of covenants of title, claiming it had paid $10,536.72 toward the purchase (including down payment, installments, mortgage payments, improvements, and expenses). After FMC's summary judgment, USLife paid Clinic $10,536.72 under its title insurance policy. Boggs and Evans Products filed cross-motions for summary judgment.

The trial court's rulings were, in chronology: granting Evans Products' cross-motion and denying Clinic's motion (Oct. 28, 1981); a January 6, 1982 minute entry that simultaneously granted Clinic's motion but ordered Boggs have judgment against Clinic (later clarified); a March 26, 1982 judgment denying Clinic's motion and granting Boggs' cross-motion (Clinic to take nothing); and an April 12, 1982 judgment granting Evans Products' cross-motion against Boggs and Clinic. Clinic appealed.

Legal Issues Presented

Whether the trial court erred in granting summary judgment against Clinic where the record demonstrated Clinic's right to summary judgment as a matter of law.
Whether the trial court erred in granting summary judgment against Clinic where a fact issue regarding damages sustained by Clinic precluded summary disposition in favor of Boggs.
Whether the trial court erred in granting summary judgment in favor of Evans Products and against Clinic where Clinic contended Boggs' breach of contract relieved Clinic of any legal obligation to Evans Products for the assumption of the mortgage.

Arguments of the Parties

Appellant (Willcox Clinic, Ltd.)

Argued entitlement to rescission because Boggs breached the warranty to convey marketable title; failure to deliver marketable title constitutes breach of vendor's contract.
Claimed it had paid $10,536.72 toward the purchase and therefore was entitled to return of payments and relief for breach.
Contended that the title insurance payment did not fully compensate Clinic for its losses, especially because Clinic faced liability to Evans Products in excess of $23,000 after subsequent proceedings and thus a factual dispute existed regarding full compensation.
Asserted that Boggs was responsible for any judgment obtained by Evans Products against Clinic as alleged in Clinic's cross-claim.

Appellees Boggs

Argued that Clinic had been fully compensated by the title insurance payment (USLife's payment of $10,536.72) and that allowing Clinic further recovery would unjustly enrich Clinic at Boggs' expense.
Relied on the trial court's minute entry finding that Clinic "has received compensation in full for its losses incurred herein."

Appellee Evans Products Company

Maintained the right to enforce the assumption of the mortgage against Clinic and prevailed below on summary judgment against Clinic.
Implicit in the trial court's ruling was the position that Clinic remained liable under the mortgage assumption despite the contract breach between Boggs and Clinic.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sabin v. Rauch, 75 Ariz. 275, 255 P.2d 206 (1953)	Failure to deliver marketable title constitutes breach of vendor's contract.	Used as authority for the proposition that a seller's failure to convey marketable title breaches the contract and supports purchaser's remedies.
Bailey v. Kuida, 69 Ariz. 357, 213 P.2d 895 (1950)	Same principle: breach (failure to convey marketable title) entitles purchaser to rescission/return of purchase price.	Court relied on Bailey to hold Clinic was entitled to rescission as a matter of law given similar facts and the contract warranty.
Brock v. Jernigan, 19 Ariz. App. 161, 505 P.2d 1052 (1973)	Authority that failure to provide marketable title breaches vendor's contract.	Cited to support the general rule applied to the facts here that breach of title warranty entitles purchaser to relief.
Cole v. Atkins, 69 Ariz. 81, 209 P.2d 859 (1949)	When seller cannot convey good title, purchaser has cause of action for return of purchase price with interest.	Cited to support the remedy of return of purchase price following inability to convey marketable title.
Lane v. Bisceglia, 15 Ariz. App. 269, 488 P.2d 474 (1971)	Support for rescission remedy where warranted by failure to deliver marketable title.	Referenced along with Bailey to confirm Clinic's entitlement to rescission.
Robertson v. Robertson, 61 So.2d 499 (Fla. 1952)	Authority that a mortgagee not party to the purchase contract who furnished no consideration for the assumption stands in mortgagor's position and has no greater rights under the assumption agreement.	Used to support the conclusion that Evans Products, as mortgagee, could not enforce the assumption clause against Clinic when Boggs' breach entitled Clinic to rescind.
59 C.J.S., Mortgages, § 418(B)	Statement of principle that a mortgagee's rights regarding enforcement of assumption may be no greater than the mortgagor's rights.	Relied upon in the court's reasoning that Evans Products stands in the position of Boggs and cannot obtain greater rights than Boggs would have under the contract.

Court's Reasoning and Analysis

The court proceeded in several analytical steps tied directly to the record and cited authorities:

The court first reiterated established Arizona law that failure to deliver marketable title under a contract to convey by warranty deed constitutes a breach of the vendor's contract (citing Sabin, Bailey, Brock), and that when the seller cannot convey good title the purchaser has a cause of action for return of purchase price (citing Cole).
Applying those principles to the facts, the court found that the Boggs had warranted title and that the FMC judgment lien (not referenced in the sales contract) superiorly vested title in FMC, depriving Clinic of equitable title despite Clinic's performance of its contractual obligations. On those grounds the court concluded Clinic was entitled to rescission as a matter of law and that the trial court erred in denying Clinic relief against Boggs.
The trial court's contrary factual finding — that Clinic had been fully compensated by the title insurer — was examined. The opinion observed that USLife paid Clinic $10,536.72, but noted a factual dispute remained whether that payment fully compensated Clinic for all damages resulting from Boggs' breach. The court emphasized that Clinic had later incurred potential liability to Evans Products in excess of $23,000, and that Clinic's interrogatory answer denying additional damages had been filed before Evans Products obtained judgment against Clinic, undercutting Boggs' reliance on that answer.
Because the amount of compensation was a factual question, the appellate court held the trial court erred in finding as a fact that Clinic had been completely compensated and remanded the issue for determination of restitution if necessary.
With respect to Evans Products, the court reasoned that a mortgagee who was not a party to the purchase contract and who provided no consideration for the assumption agreement stands in the position of the mortgagor and cannot assert greater rights than the mortgagor would have (citing 59 C.J.S., Mortgages §418(B) and Robertson v. Robertson). Because Boggs' breach entitled Clinic to rescind, Boggs could not enforce the assumption clause against Clinic; accordingly, Evans Products similarly could not enforce it. The trial court therefore erred in granting summary judgment for Evans Products against Clinic.

Holding and Implications

Holding:

The appellate court reversed the trial court, vacated the two summary judgments entered for Boggs and Evans Products, and ordered the trial court to enter summary judgments in favor of appellant Willcox Clinic, Ltd. against Boggs and Evans Products granting rescission and to conduct further proceedings to determine restitution.

Direct consequences:

The summary judgment denying Clinic relief against Boggs was vacated and the appellate court ordered entry of summary judgment for Clinic against Boggs on the rescission claim.
The summary judgment in favor of Evans Products against Clinic was vacated; Evans Products was held not entitled to enforce the assumption clause against Clinic in light of Boggs' breach, and summary judgment for Clinic was ordered against Evans Products on that basis.
The matter was remanded for further proceedings limited to determining the amount of restitution (i.e., whether the title insurer's payment constituted full compensation and, if not, the amount of Clinic's recoverable restitution). The trial court's factual finding that Clinic had been "compensated in full" was rejected as erroneous given the record.

Broader implications:

The opinion applied settled Arizona authority on breach of warranty of title and rescission and relied on authorities regarding a mortgagee's rights vis-à-vis an assumption clause. The court did not purport to announce a new rule of law; rather, it applied existing precedent to the facts and remanded for determination of damages/restoration.

Disposition: Reversed with directions; summary judgments for Boggs and Evans Products vacated; trial court ordered to enter summary judgment for Clinic against Boggs and Evans Products and to proceed to determine restitution.

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The WILLCOX CLINIC, LTD., an Arizona corporation, Appellant, v. EVANS PRODUCTS COMPANY, a Delaware corporation, Appellee. The WILLCOX CLINIC, LTD., an Arizona corporation, Appellant,

OPINION

HATHAWAY, Judge.

The appellant, Willcox Clinic, Ltd., has brought this appeal to challenge the lower court's denial of its motion for summary judgment against appellees Boggs and the granting of appellees' Boggs motion for summary judgment against the clinic, as well as the granting of summary judgment in favor of appellee Evans Products Company, and denying appellant's motion against Evans Products.

The applicable facts are as follows. On January 26, 1978, the Boggs, sellers, and Willcox Clinic, Ltd., [Clinic] purchaser, entered into an agreement for the purchase of certain real estate in Cochise County for a total purchase price of $28,000. Boggs warranted that title to the property was subject only to 1978 taxes, to liabilities and obligations by reason of the land's inclusion within the northern Cochise Hospital District, and the Bowie Volunteer Fire Company District, and to a mortgage in favor of Evans Products. Clinic agreed to pay the total price by making a $5,000 down payment, assuming the outstanding mortgage to Evans Products in the principal amount of $14,203.66, and paying Boggs the unpaid balance through monthly installments of $154.34 each. Boggs agreed to execute and place into escrow a warranty deed. In connection with the sale, USLife Title Insurance Company of Dallas issued a standard owner's policy of title insurance to Clinic as the named insured in the amount of $28,000, evidencing clear and marketable title to the property subject only to the matters set forth in the contract.

On August 2, 1978, FMC Corporation filed a judgment lien foreclosure action against Clinic's property based on a default judgment it had obtained in September 1972, and recorded at that time, against the Boggs' predecessors in interest. Boggs, Clinic, and Evans Products remained as defendants. There is no contention that Boggs or the other parties to this action had actual knowledge of the existence of the lien of FMC. On September 6, 1978, FMC filed a motion for summary judgment against all the defendants and the judgment was entered in April 1979. Clinic lost the property when FMC purchased it at a sheriff's sale for the sum of $25,000, an amount insufficient to satisfy FMC's judgment for $29,657.20. On June 29, 1981, Clinic filed a motion for summary judgment seeking rescission based on failure of consideration and breach of covenants of title by Boggs. Clinic claimed that at that time it had lost its $5,000 down payment, monthly installments to Boggs totaling $2,289.30, regular payment on the mortgage to Evans Products in the amount of $2,039.50, and improvements and miscellaneous expenses for a total sum of $10,536.72 toward the $28,000 purchase price. After the court granted FMC's motion for summary judgment for foreclosure, USLife paid Clinic $10,536.72, representing the sums paid by Clinic under its contract to purchase the property from Boggs. Boggs also filed a motion for summary judgment as did Evans Products. On October 28, 1981, the trial court granted Evans Products' cross-motion for summary judgment and denied Clinic's motion for summary judgment. On January 6, 1982, the trial court granted Clinic's motion for summary judgment but at the same time ordered that Boggs have judgment against the Clinic. That inconsistency was apparently clarified in the March 5, 1982, minute entry wherein the court set forth its finding that the Clinic had received full compensation for its losses, and the earlier minute entry order was corrected to deny Clinic's motion for summary judgment against Boggs. On March 26, 1982, the lower court entered judgment denying Clinic's motion for summary judgment and granting Boggs' cross-motion for summary judgment by ordering that Clinic take nothing by its cross-claim against Boggs. Finally, on April 12, 1982, the lower court entered judgment on Evans Products' cross-motion for summary judgment against Boggs and the Clinic. This appeal followed.

Appellant has presented three questions for our review:

1. Whether the trial court erred in granting summary judgment against Clinic where the record before the court demonstrated Clinic's right to summary judgment as a matter of law;

2. Whether the trial court erred in granting summary judgment against Clinic where a fact issue regarding damages sustained by Clinic precluded the summary disposition of the issue in favor of Boggs; and

3. Whether the trial court erred in granting summary judgment in favor of Evans Products and against Clinic where the record supported Clinic's position that Boggs' breach of contract relieved Clinic of any legal obligation to Evans Products for the assumption of the mortgage between Evans Products and Boggs.

There is no question that failure to deliver marketable title to property under an agreement to provide a warranty deed constitutes a breach of the vendor's contract. Sabin v. Rauch, 75 Ariz. 275, 255 P.2d 206 (1953); Bailey v. Kuida, 69 Ariz. 357, 213 P.2d 895 (1950); Brock v. Jernigan, 19 Ariz. App. 161, 505 P.2d 1052 (1973). When a seller contracts to sell property and for whatever reason is unable to convey good title to the purchaser upon payment of the price, the purchaser has a cause of action for the return of the purchase price paid together with interest. Cole v. Atkins, 69 Ariz. 81, 209 P.2d 859 (1949). The trial court's entry of summary judgment which denied Clinic any relief against Boggs for Boggs' breach of contract was erroneous as a matter of law.

The trial court ruled the way it did because it found that Clinic had been fully paid by its title insurance policy. The court made an express finding of fact in the minute entry of March 5, 1982, that Clinic "has received compensation in full for its losses incurred herein." Boggs argues that appellant would be unjustly enriched at their expense if it were to be successful in its claim against them. However, Clinic is entitled to rescission based on Boggs' failure to provide marketable title as warranted. Bailey v. Kuida, supra; Lane v. Bisceglia, 15 Ariz. App. 269, 488 P.2d 474 (1971). Here, the facts are similar to those in Bailey v. Kuida, supra. The Boggs agreed and warranted that the property would be conveyed by warranty deed subject only to those matters which the parties knew about at the time of negotiations. The contract makes no reference to the FMC judgment lien. The record demonstrates that Clinic was entitled to rescission as a matter of law. Clinic made all required payments, met all of its obligations until it was deprived of its interest in the property purchased from Boggs by a judgment which vested superior title in FMC and deprived Clinic of equitable title it had in the property. Therefore, it was error for the trial court to enter summary judgment in favor of Boggs against Clinic, and that order is vacated and the trial court is ordered to enter summary judgment in favor of Clinic and against Boggs.

As noted, Boggs' contention in their cross-motion for summary judgment is that Clinic had received full payment on its claim against Boggs from USLife. However, the question of whether it received full compensation for damages sustained as a result of the breach of contract is a fact question. Boggs points to one of the interrogatories propounded to Clinic:

"Do you claim any damages or amounts from Defendants/Cross claimants/Cross defendants BOGGS other than or in addition to such amounts received pursuant to the title insurance policy?"

Clinic's answer was: "None, other than attorney's fees sought per contract." As Clinic maintains, there is a question of fact remaining as to whether the amount of compensation received by Clinic under its separate title insurance policy did indeed represent compensation in full. It could not have been compensated in full for its loss since the result of the summary judgment leaves it liable for a judgment in excess of $23,000 to Evans Products. Clinic maintains that by the time the lower court granted Evans Products' motion for summary judgment against Clinic on October 28, 1981, it had sustained further losses in the amount of $13,497.22, together with accrued interest and attorneys fees. Therefore, the record demonstrates that the trial court erred in finding as a fact that full compensation had been received by Clinic. Clinic maintains that Boggs mistakenly places great weight on the above quoted answer to the interrogatory. As the record demonstrates, that answer was filed on August 10, 1981, at which time Evans Products had obtained no judgment against Clinic. It must be noted that in its cross-claim filed on July 30, 1979, Clinic specifically alleged Boggs' responsibility for any judgment obtained by Evans Products against Clinic as a result of the breach of the land purchase contract. Therefore, it was error for the trial court to find as a fact that Clinic had been completely compensated for its loss. Since we find that summary judgment should be entered in favor of Clinic and against Boggs, we will remand this portion of the case to the trial court to determine the amount of restitution.

Finally, we believe it was error to grant summary judgment in favor of Evans Products and against Clinic. A mortgagee in Evans Products' position, not a party to the land purchase contract and who provided no consideration for the assumption agreement, stands in the position of the mortgagor (Boggs) and has no greater right to enforce the assumption agreement than Boggs would have had. See 59 C.J.S., Mortgages, § 418(B). The assumption of Boggs' indebtedness on the Evans Products' mortgage constituted part of the purchase price which Clinic paid. Boggs' inability to deliver legal title to Clinic as a result of the FMC foreclosure amounted to a failure of consideration which, we have held, entitles Clinic to rescind the purchase contract. Since Boggs has no right to enforce a provision in that contract against Clinic, the mortgagee, Evans Products, standing in the same position as Boggs, is similarly precluded from enforcing the assumption clause contained in that contract and the trial court erred in granting Evans Products summary judgment. See Robertson v. Robertson, 61 So.2d 499 (Fla. 1952).

The two summary judgments are vacated and the trial court is ordered to enter summary judgments in favor of appellant and against Boggs and Evans Products Company granting rescission and to conduct further proceedings to determine restitution.

Reversed with directions.

HOWARD, C.J., and BIRDSALL, J., concur.

WILLCOX CLINIC, LTD. v. EVANS PRODUCTS CO