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Meth on property doesn’t mean rescission or damages


Goldiluxe bought property from Abbott  for $140,000 without seeing it, relying on a property inspector’s report and a real estate agent’s video. The property included land, with a house, a cabin and three mobile homes.

Goldiluxe paid $50,000 down and gave Abbott a note for $90,000. A few months later, the police raided the property and made arrests for meth-related crimes. Goldiluxe’s owner visited the property and found two mobile homes on the property to be junk.  She had the two junk mobile homes removed from the property and moved one new mobile home onto it. Goldiluxe continued collecting rent for another year after the police raid, eventually falling behind on mortgage payments to Abbott.

To stop the foreclosure, Goldiluxe got an injunction, and also asked the court to undo the transaction, so that Goldiluxe would get a refund, and Abbott would get the property back. Goldiluxe asked the court to award damages, if the court wouldn’t undo the transaction.

Goldiluxe proved to the trial court that Abbott violated a Missouri statute that requires sellers of property to disclose to prospective buyers if  the property being sold had been involved in a methamphetamine-related crime, or even if somebody who had been convicted of a meth crime has lived on the property.  Abbott, the seller, knew that her son who had been convicted of a meth crime had lived on the property. But Abbott didn’t tell Goldiluxe this when Goldiluxe bought the property.

The trial judge refused to order rescission, which had the effect of allowing Abbott to keep the payments she had received from Goldiluxe and to continue with the foreclosure. The trial court didn’t award damages to Goldiluxe, because the trial court apparently didn’t think that the drop in the value of the property was the result of Abbott’s failure to tell Goldiluxe about her son’s meth conviction. Instead, at least part of the change in the value of the property may have had to do with actions of Goldiluxe.

When faced with a case of a defrauded buyer, a Missouri court can order “rescission” or damages, but not both (unless a contract says otherwise). “Rescission” means restoring the parties to the status quo, where they were before the transaction. Missouri law does not require that a court order rescission unless the court finds that the parties can be put back where they were, “without material enrichment or impoverishment.”

The plaintiff claiming to have been defrauded has to choose to seek rescission or damages from the fraud. But Goldiluxe followed the advice of Yogi Berra, who said, “When you come to a fork in the road, take it.” Goldiluxe at trial chose to run with the idea of rescission, but on appeal claimed that if the trial judge was right in denying rescission, that Goldiluxe should get a new trial on damages from the fraud.

The Missouri court of appeals in Goldiluxe, LLC v. Abbott, affirmed the trial court, finding that rescission was not appropriate, because it would have impoverished Abbott. The value of the property had plunged to $59,500 by the time of the trial, not as a result of Abbott’s fraud or other actions, and the court couldn’t fix that.

The court of appeals didn’t find anything in the record to undermine the trial court’s finding that Goldiluxe failed to prove financial damages. The court of appeals noted also that once Goldiluxe had chosen to seek rescission, Goldiluxe should not expect the case to be remanded for a trial on damages after an appeal.

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About Harry Styron

I'm a lawyer who lives in Branson, Missouri, whose professional interests involve real estate, construction and local government.

2 responses »

  1. The record included extensive testimony from the buyer that the property ceased to generate sufficient income after the meth raids and that she had a hard time keeping good tenants in there. Officers from the Hollister Police Department also testified that the property had developed a bad reputation due to the drug activity. The 1997 Western District case Groothand v. Schleuter, 949 S.W.2d 923, held that a “Party who is fraudulently induced to enter contract may either affirm contract and sue at law for damages, or disaffirm contract and sue in equity for rescission.” I wonder if that case is still good law under these facts? I guess what the Courts are saying now is that one whis is defrauded had better sue fast. I think the Court is now wanting proof of damages before they allow for rescission — two remedies which are mutually exclusive.

    Reply
  2. The Chief of Police admitted that the Hollister and surrounding areas are infested with drugs and bad neighborhood. If that judge denied the appeal then he is not helping to improve the area and he is condoning the scammers like Abbott. Abbott will continue to involve in fraudulent sale of her property to take advantage of the poor judicial system because she knew that she can get away with it again and again.

    Reply

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