Nacey v. Cheney

MR. JUSTICE COOPER delivered the opinion of the court. On May 28, 1920, the plaintiffs entered into a written contract with the defendants E. G. Wilkinson, Guy Cheney and W. M. Rainbolt, whereby they agreed to furnish an abstract “showing clear and perfect title, free from all liens, taxes or encumbrances,” and to convey to them by general warranty deed certain real estate situated in Roosevelt county, with all appurtenances, water rights and other “rights to said land belonging and now thereon,” the defendants to pay all taxes and assessments for the year 1920, and all years prior thereto, and to pay the interest to become due October 1, 1920, upon a note in the sum of $1,200, secured by a mortgage upon part of the lands, the total purchase price, including the mortgage, to be the sum of $35,000. Of the further provisions therein only the following need be set forth: “It is further agreed by the parties hereto, that if said first party has not obtained title to about 159 acres of the above-described land and is unable to convey said title, that the said first party will execute a warranty ' deed describing all said lands hereinbefore described exeept as to that which he does not now have title, and will deliver said deed to the Citizens’ State Bank of Culbertson, Montana, at Culbertson, Montana, for said parties of the second part, and said first party further agrees that he will do all things necessary to obtain title to the land above mentioned as to which he does not now have title and as soon as such title is obtained, which he further agrees shall not be later than August 1, 1920, he will execute a general warranty deed conveying said land to said second parties and furnish abstract of title showing said land clear and free from all encumbrances. This contract to be performed within fifteen.days except as to about 160 acres.” — 61 — Contemporaneously with the execution and delivery of the agreement, the defendants placed with the Citizens’ State Bank of Culbertson, Montana, a cash certificate of deposit in the sum of $5,000 as a guaranty for the performance of the contract upon their part. On the back thereof are the following indorsements: . “Upon approval of papers by second parties in P. J. Nacey and Cheney, Wilkinson, Rainbolt contract pay the within to P. J. Nacey, otherwise hold this subject to my order. “[Signed] W. M. Rainbolt. “If second parties fail to fulfill their part of the contract and said first party can and is ready to perform this part, then the within shall be forfeited to said first party. “[Signed] W. M. Rainbolt. The cause was tried as one in equity. In this court the argument is confined to the question whether the evidence is sufficient to show a compliance by the plaintiffs with their undertaking to furnish an abstract showing “a clear and perfect title, free from all liens, taxes and incumbrances.” The plaintiffs contend that they fully met the demands of the contract, but that for some reason not disclosed by the evidence, before the time for fulfillment had expired, the defendants arbitrarily refused to make the purchase. The patents upon which title to 570.51 acres—more than half of the land involved—rests reserves to the government of the United States, or to persons authorized by it, the right to prospect for, mine and remove coal from the same upon compliance with the conditions and subject to the limitations of the Act of March 3, 1909, 35 Stats. 844 (6 Fed. Stats. Ann., p. 608, U. S. Comp. Stats., sec. 4665). The court found that the abstract was forwarded to Rain-bolt at his request on June 17; that he submitted it to an attorney in the city of Omaha, Nebraska, for examination; that the attorney returned it to Rainbolt, who forwarded it to Mr. Lewerenz, as plaintiffs’ agent, accompanied by a letter of his own in which were pointed out objections to the title, and — 62 — suggestions made as to how the abstract should be corrected and amplified, and requested that the “usual reservations” spoken of therein be fully set forth; that on June 25 defendants took possession of the premises; that on July 13 the plaintiff P. J. Nacey, Mr. Matoushek and Mr. Lewerenz met the defendants in a room in the Citizens’ State Bank at Culbertson, where the imperfections in the abstract were canvassed, and at the end of the discussion the plaintiffs tendered documents correcting the defects specified by defendants and offered a warranty deed conveying the premises to defendants. The court also found that the plaintiffs were ready, able and willing to comply with their contract “as far as the same could be complied with at that time,” and that defendants refused to accept the deed or to go on and complete the purchase. Upon these findings the court rendered judgment, ordering the certificate of deposit canceled and the proceeds thereof delivered to plaintiffs. From the judgment and order denying a new trial, defendants have appealed. Did the reservations of the coal rights constitute an en- cumbrance ? In Mackey v. Harmon, 34 Minn. 168, 24 N. W. 702, it is said: “If the right or interest of the third person is such that the owner of the servient estate has not so complete and absolute an ownership and property in his land as he would have if the right or interest spoken of did not exist, his land is, in law, diminished in value and encumbered. ’ ’ In Prescott v. Trueman, 4 Mass. 627, 3 Am. Dec. 246, Chief Justice Parsons, delivering the opinion for the court, said: “Every right to, or interest in the land granted, to the diminution of the value of the land, but consistent with the passing of the fee of it by the conveyance, must be deemed in law an encumbrance. * * * Thus a right to an easement of any kind * * * is an encumbrance.” Says the supreme court of Pennsylvania, in Speakman v. Forepaugh, 44 Pa. 371: “If there be a color of an outstand — 63 — ing title which may prove substantial, though there is not enough in evidence to enable the chancellor to say that it is so, a purchaser will not be held to take it, and encounter the hazard of litigation with an adverse claimant.” In Batley v. Foerderer, 162 Pa. 460, 28 Atl. 868, the title to a lot was passed “under and subject to the condition that no mill, factory, brewery or distillery shall be erected on the said several lots of ground or any part or parcel thereof.” Of this the court remarked: “It must be conceded that a title thus clogged with restrictions cannot be regarded as either ‘good or marketable’ or ‘clear of all encumbrances.’ ” Stambaugh v. Smith, 23 Ohio St. 584, was an action on a covenant against encumbrances. It was held that a deed whereby all the iron ore and coal upon certain of the lands, with a right of way and other privileges for their removal, constituted an encumbrance within the meaning of a covenant that the lands were “free from all encumbrances whatsoever. ’ ’ When it is ascertained that there is an existing defect in the title, the purchaser will not be compelled to perform on the allegation that it is doubtful whether the defect will ever incommode him. If there be any reasonable chance that some third person may raise a question against the owner of the estate after the completion of the contract, it is a circumstance which renders the bargain a hard one for the purchaser, and one which the court will not, in the exercise of its discretion, compel him to execute. (Seaman v. Vawdrey, 16 Vesey, 39.) Chief Justice Marshall, in Garnett v. Macon, Fed. Cas. No. 5245, said that the decisions were not entirely confined to cases of doubtful title, but applied “to encumbrances of every description, which may, in any manner, embarrass the purchaser in the full and quiet enjoyment of his purchase.” A conveyance of timber on land and the right to remove it therefrom was held to be an encumbrance, in Cathcart v. Bowman, 5 Pa. 317. An outstanding oil lease was held, in Sweet v. Berry (Tex. Civ. App.), 236 S. W. 531, to convey an in — 64 — terest in the land, to affect the title, and to render it unmarketable. The finding that the plaintiffs were ready, able and willing to comply with their contract “as far as the same could be fully complied with” on July 14 was not, as is apparent, that the plaintiffs had fulfilled their contract according to its terms. Neither is it in harmony with the undisputed evidence which then showed the title to have been burdened with the right of the government or its grantee to mine and remove coal from under the surface. Under the provisions of the Act of April 14, 1914 (Chap. 55, 38 U. S. Stat. 335 [6 Fed. Stats. Ann., p. 613, U. S. Comp. Stats., sec. 4665a]), it was possible for the plaintiffs to have had the lands examined for the purpose of ascertaining whether there were in fact deposits of coal beneath the surface, and in case there were none, the title could then have been cleared of that overhanging cloud; or had such examination demonstrated that there were deposits of coal thereunder, the plaintiffs might have acquired all the rights reserved by the government under section 4659 of the Compiled Statutes of the United States. Had the plaintiffs, however, adopted either of the courses indicated, the title they now insist fulfills their obligation might have been freed of a very serious defect. The very purpose of the covenant to furnish “a perfect title free from all liens and encumbrances whatsoever” was to preserve the rights of the defendants in their bargain, and to give them a title which would insure their peaceable and uninterrupted use and occupancy of the lands for which they were to pay the price. Confronted as they were with a title which would expose them to a dual right of possession with third persons because of the coal reservations, it cannot be said that the defendants were capricious or unreasonable in refusing to complete their proposed purchase; especially in view of the fact that, after the attention of the plaintiffs had been directed to the coal reservations still outstanding, they gave no indication of their willingness to obtain the relief — 65 — allowed by the statutes above referred to. The defects in the title thus pointed out were enough to justify the defendants in refusing to go further in the performance of their obligations under the contract and to insist upon the return of the certificate' of deposit. As to the other reservations in the patent no opinion is, or need be, expressed. The cause is reversed, with directions to dismiss the complaint. Reversed. Mr. Chief Justice Callaway and Associate Justices Holloway, Galen and Stark concur.