Luette v. Bank of Italy Nat. Trust & Savings Ass’n

Brief Fact Summary. Plaintiffs sought to rescind an executory contract for the purchase of land, alleging that the Defendant could not deliver marketable title.

Synopsis of Rule of Law. The well-settled rule in California is that there can be no rescission by a vendee of an executory contract for sale merely because of lack of title in the vendor prior to the date when performance is due.

Facts. Plaintiffs sought to rescind an executory contract for the purchase of land, alleging that the Defendant could not deliver marketable title, insofar as the land in question may not have been owned by Defendant. The land was the subject of a Department of Interior matter, which turned on resolving whether homestead claims are to be upheld adverse to Defendant’s ownership. The Plaintiffs stated that when they discovered the homestead claims they demanded that Defendant exhibit its title and offered to pay the full amount due under the contract, but that Defendant refused and refused to refund monies paid by Plaintiffs under the contract. The Plaintiffs sued for an injunction restraining Defendant from canceling the contract, forfeiting Plaintiffs’ rights, relieving Plaintiffs from making any further payments under the contract until the Department of Interior makes its ruling and, in the alternative, that the contract be rescinded and that Plaintiffs be awarded all monies paid t
o date.

Issue. Does the complaint state grounds for rescinding the contract?

Held. No. Affirmed.
The well-settled rule in California is that there can be no rescission by a vendee of an executory contract for sale merely because of lack of title in the vendor prior to the date when performance is due.
The vendee cannot place the vendor in default be tendering payment and demanding a deed in advance of the time and under circumstances not contemplated by the contract.
The court considered whether the Defendant had committed fraud. The rule in that case would be that even though the vendor is not in default, the vendee may rescind an executory contract for material fraudulent misrepresentations of the vendor as to a matter of title upon which the vendee was justified in relying.
The court found that the parties dealt with one another at arm’s length and that there was no fraud. Thus, the contract could not be rescinded.

Discussion. The court’s decision is akin to a finding that the Plaintiffs’ claim was not ripe. Neither the Plaintiffs nor the Defendant had defaulted and the time for delivery of the deed had not arrived. The rule against a vendee speeding up the time for delivery of a deed is important to protect the vendor who has calculated that an existing encumbrance can be paid off prior to the time for delivery of a deed.