This is a suit by Warren H. Smith and wife for rescission of a contract to buy a lakefront lot, and for restitution, with the damages alleged to be in the amount of the purchase price, $25,700, plus "a reasonable amount of interest on said amount from July 2, 1973, plus expenditures for taxes from such time." After trial to the court a take-nothing judgment was rendered. The trial court concluded that the Smiths had failed to prove the elements required to support the remedy of rescission. This judgment was affirmed by the Court of Civil Appeals. Smith v. National Resort Communities, Inc., 574 S.W.2d 639. We will reverse these judgments and render judgment for the Smiths.
Warren H. Smith and wife, plaintiffs below and Petitioners here, are residents of Dallas County, Texas. National Resort Communities, Inc., herein called NRC, the defendant below and Respondent here, was the developer of Highland Lake Estates on Lake Travis, located northwest of Austin, Texas. In 1973, the Smiths were flown to view the residential lots in the subdivision. Under date of May 12, 1973, they executed with NRC a Contract for Deed in which they agreed to buy Lot No. 23052, Section 23, Highland Lake Estates, for a cash price of $25,700. The lot was later conveyed to the Smiths by warranty deed under date of August 9, 1973.
This suit for rescission by the Smiths is grounded on allegations that the lot was not unable for residential purposes because it was wholly below the 715 foot contour line and as such was subject to inundation under an easement held by the Lower Colorado River Authority, a fact unknown to the Smiths and not disclosed to them by NRC.
In response to Requests for Admissions served by the Smiths pursuant to Rule 169, Texas Rules of Civil Procedure, NRC admitted:
A sales brochure received by the Smiths on the promotional trip is in evidence. Its major emphasis is upon the attractiveness of the lots in Highland Lake Estates as a homesite in a resort and recreational area.
The problem here does not concern defects affecting marketable title to property of which a buyer may be charged with notice. We are concerned with conditions affecting the suitability of the property for use in building a home, the purpose for which NRC promoted its sale and for which the property was purchased by the Smiths.
A corollary principle is that where there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts. Rowntree v. Rice, 426 S.W.2d 890 (Tex.Civ.App.1968, writ ref'd n. r. e.). There is an analogy to the rule considered by us in considerable depth, and with approval, in Champlin Oil & Refining Co. v. Chastain, 403 S.W.2d 376 (Tex.1965), that an estoppel may arise as effectually from silence, where there is a duty to speak, as from words spoken. See generally, Weintraub v. Krobatsch, 64 N.J. 445, 317 A.2d 68 (1974); Clauser v. Taylor, 44 Cal.App.2d 453, 112 P.2d 661 (1941); Cohen v. Vivian, 141 Colo. 443, 349 P.2d 366, 80 A.L. R.2d 1448 (1960); Sorrell v. Young, 6 Wn.App. 220, 491 P.2d 1312 (1971); and the Annotation, Fraud Predicated on Vendor's Misrepresentation or Concealment of Danger or Possibility of Flooding or Other Unfavorable Water Conditions, II. Silence, § 3. Overflow or flooding of property generally, 90 A.L.R.3d 568, 583 (1979).
On the occasion of the execution of the contract of sale of the lot in question, the Smiths received an offset printed sheet entitled "STATEMENT OF RESERVATIONS, RESTRICTIONS, TAXES AND ASSESSMENTS," together with a twenty-eight page writing with the caption "Declaration of Reservations Highland Lake Estates County of Travis, Texas." NRC contends that these writings reasonably disclosed to the Smiths the material facts of the LCRA overflow easement and that the lot purchased by them was below the 715 foot contour line, or alerted them to investigate the possible existence of these facts. The Court of Civil Appeals held that the writings were some evidence in support of the finding of the trial court that "a person of ordinary intelligence, in the exercise of reasonable diligence, would be placed on notice that the flood easement might affect the lot in question." Upon detailed examination of these writings we disagree with the finding of the trial court and with the conclusions of the Court of Civil Appeals.
The STATEMENT is divided into three sections, only one of which is material here. It is introduced with the words "Reservations and Restrictions:" and reads as follows:
There is no reference to or suggestion of any easement held by LCRA or any other entity. Indeed, the last sentence, "These reservations and restrictions are enforceable by other lot owners in the subdivision." clearly indicates that the reservations or restrictions were for the benefit of other lot owners, and were designed for their mutual protection. The copy of the Reservations attached to the STATEMENT is also misleading as to the LCRA easement. On its first page the Declaration refers to plats of record pertaining to Sections 4, 5, 6, 8, 9, 10 and 14. The lot purchased by the Smiths is
IMPROVEMENT STANDARDS (with four sub-paragraphs);
LAND USE AREAS—GENERAL, with subheadings, Advertising, Air Conditioning Units, Moorings, Piers or Docks, Building Exterior, Clothes Lines, Dust and Erosion Control, Easements, Electrical Power, Nuisances, Occupancy of Structures, Plumbing, Storage of Materials, Storage of Tools and Trash, Temporary Buildings, Unnatural Drainage, Drilling and Mining, Use of Premises, Subdivision of Lots, LCRA Overflow Easement;
LAND USE AREAS—RESIDENTIAL, with subheadings, Livestock, Poultry and Pets, Sewage Disposal Systems, Side Distances, Garages and Carports, Spaces Between Buildings—Passage Ways to Dwelling Units, Location of Accessory Buildings —in the R Land Use Areas, Side Yard Setback—Reverse Corner Lots;
R-1 SINGLE FAMILY RESIDENTIAL DISTRICT, with subheadings, Uses Permitted, Maximum Building Height, Minimum Yard Requirements, Maximum Area of Dwelling, Minimum Dwelling Unit Size;
R-2 TWO FAMILY RESIDENTIAL DISTRICT, with subheadings, Uses Permitted, Maximum Building Height, Minimum Yard Requirements, Maximum Area of Dwelling, Minimum Dwelling Unit Size;
R-4 MULTIPLE RESIDENTIAL DISTRICT, with subheadings, Uses Permitted, Maximum Building Height, Minimum Yard Requirements, Maximum Area of Dwelling, Minimum Automobile Parking Requirements, Minimum Dwelling Unit Size;
R-6 APARTMENT, TOWNHOUSE & COTTAGE DISTRICT, with subheadings, Uses Permitted, Maximum Building Height, Minimum Yard Requirements, Maximum Area of Dwelling, Minimum Automobile Parking Requirements, Minimum Dwelling Unit Size;
C-2 GENERAL COMMERCIAL DISTRICT, with subheadings, Uses Permitted, Maximum Building Height, Storage of Materials, Maximum Area of Building; and
GENERAL PROVISIONS, with subheadings, Duration, Notices, Severability, Enforcement, and Maintenance Fee and Property Owner's Association.
Item 19, under the heading, "B. Land Uses Areas—General" at the bottom of page 8, reads as follows:
There is no suggestion in this recitation that any lot other than those in Sections 4, 5, 6, 8, 9, 10 and 14 were below the 715 foot contour line. One would reasonably infer that a lot in another section, such as Section 23, would not lie below the 715 foot contour line and as such would not be subject to inundation under the LCRA overflow easement. Indeed, a careful reading by the Smiths of the entire Declaration of twenty-eight pages would yet not have reasonably alerted them to the possibility that the mentioned easement encumbered the lot they were purchasing.
Accordingly, we hold that the Smiths established their right to judgment rescinding their contract with NRC for the purchase of the lot in question. As previously noted, the trial court rendered a take-nothing
The special damage established at trial by the Smiths was the payment of taxes for two years in the sum of $49.90, and the payment of an annual maintenance fund bill from NRC in the sum of $48.00, a total sum of $97.90.
The Smiths also sought "a reasonable amount of interest" on the purchase price of $25,700 "from July 2, 1973." The reason for or the significance of the date of July 2, 1973, is nowhere shown. It was admitted by NRC that the Smiths "paid" and NRC "received the sum of $25,700 for Lot 23052 ...." It is indicated in the testimony of Warren H. Smith that this occurred on August 9, 1973, the date NRC conveyed Lot 23052 to the Smiths by warranty deed.
This Court in Watkins v. Junker, 90 Tex. 584, 40 S.W. 11 (1897) laid down the rules that where the measure of recovery is fixed by the conditions existing at the time that the injury is inflicted, the person entitled to recover has also the right to have compensation for the detention of the money to which he is entitled by reason of the wrong done to him; that if interest be properly an element of damages in any case, then it is so as a matter of law; and that the courts have by analogy adopted the legal rate of interest fixed by statute as the standard by which to be governed in assessing damages for the detention of money. Accord, Texas Company v. State, 154 Tex. 494, 281 S.W.2d 83 (1955).
Accordingly, the judgments of the Court of Civil Appeals and of the trial court are reversed and judgment is rendered rescinding the contract of May 12, 1973 and August 9, 1973, between the Smiths and NRC, and awarding damages to the Smiths in the sum of $25,700, plus interest thereon at the legal rate of six per cent from August 9, 1973, plus the sum of $97.90.
GREENHILL, C. J., and CAMPBELL, J., concur in result.
Dissenting opinion by McGEE, J.
McGEE, Justice, dissenting.
I respectfully dissent, and would affirm the judgment of the court of civil appeals for the reasons stated in its opinion. 574 S.W.2d 639.
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Implementing the venture is Ray Thomas, marketing vice president....
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... Everything that has proved so popular ... at Lago Vista is now being complemented with similar undertakings at Highland Lake Estates next door....
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`Customers are more affluent, too,' Thomas has pointed out.... That means that lots of people who have always wanted a lakeside retreat can now own one.
But do they really want a lakeside retreat? One more study, this one by the University of Michigan, indicates they do. Its researchers polled people to see what they earmarked their savings for. A majority replied, `A second home.' Not a larger home, but an auxiliary one.
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Who buys lots, builds second homes at Highland Lake Estates and Lago Vista?
Sales Brochure, Highland Lake Estates/Lago Vista.