Brief Fact Summary. A husband and wife, the Niernbergs (Defendants), owned land which they agreed to sell to the Felds (Plaintiffs) under a “Receipt and Option” which provided for a $1,500 deposit. The Defendants then sold the property to another for greater than what the Plaintiffs had agreed to and thereafter refused to return the deposit.
Synopsis of Rule of Law. An executory contract involving title to, or an interest in, land may be rescinded by an agreement resting in parol. The statute of frauds concerns the making of contracts and does not apply to rescission.
Facts. The Defendants owned land, which they agreed to sell to Plaintiffs under a “Receipt and Option”, which provided for a $1,500 deposit and the remaining balance was to be paid in cash and secured by deed of trust. Under the agreement, the Defendants were to provide merchantible title by May 1, and the Plaintiffs would secure the financing before May 1, and if any party failed, then any money paid would be held as liquidated damages. After this “Receipt and Option,” but prior to May 1, Plaintiffs desired to back out of the deal and a meeting was held between the two husbands and in the presence of the Plaintiffs’ attorney. It was orally agreed at the conference that if the Defendants sell the house to someone else for the same or greater price than agreed to by the Plaintiffs, then the deposit would be returned, but that if the Defendants had to sell for less, the deposit would be applied to the difference and any remainder would go to the Plaintiffs. The Defendants then sold the
property to another for greater than what the Plaintiffs had agreed to pay and thereafter refused to return the deposit. Plaintiffs sued for the amount of the deposit. The trial court, by jury, found for Plaintiffs and Defendants appealed.
Issue. There are three issues:
Can provisions of a written agreement be rescinded or modified by a subsequent oral agreement?
Was the subsequent oral agreement supported by consideration?
Was the oral rescission of the written agreement effective due to the lack of attendance of Defendant’s wife?
Held. Yes to all. Judgment affirmed.
An executory contract involving title to, or an interest in, lands may be rescinded by an agreement resting in parol. The statute of frauds concerns the making of contracts only and does not apply to rescission.
Thus, executory contracts such as the one in this case may be rescinded by the mutual consent of the parties thereto.
The court found that there was sufficient consideration given in that a promise for a promise was given involving the release of each party from further consideration.
The Defendants received a benefit from the promise insofar as they were able to retain the deposit until the land was sold and then were to retain the amount of the deposit necessary to make up the difference between what the new buyer would pay and what the Plaintiffs were to pay.
The jury resolved the question of the fact of the oral agreement against the Defendants, thus the lack of Defendant’s wife’s attendance at the meeting in which the oral rescission was made is not controlling.
Discussion. This case could also be seen as a way for the court to avoid a result, which would allow the Defendants to be unjustly enriched by their dealings with the Plaintiffs. The Plaintiffs’ promise to release Defendants from the written agreement to sell in effect “freed” the Defendants to sell to another. Parol evidence is evidence of intent, which comes from outside the four corners of the instrument.