Wilkinson v. McKimmie

Background

Two sellers, the Messrs. McKimmie, agreed to sell four lots to Horton for $11,500. Horton would assume a $3,000 mortgage, pay $1,000 when the deed was delivered, build two specified brick houses on two of the lots within eight months and reconvey those two houses and lots to the sellers free of liens, and give a bond guaranteeing that performance. He would also give two notes for $500 secured by a second deed of trust on two other lots that he would build upon. Wilkinson and Kemp signed a bond guaranteeing Horton’s faithful performance. The McKimmies sued the guarantors, and a lower court judgment for the sellers was affirmed on appeal.

Reasoning

The main question was whether reserving the two lots from the formal conveyance — instead of conveying then reconveying them — materially changed the contract and thus discharged the guarantors. The Court explained that although the contract’s form suggested a full conveyance followed by reconveyance, the real purpose was that Horton would have title to the remainder of the land in exchange for building the two houses for the sellers. Equity looks to substance over form. The reservation to save the expense of reconveyance did not alter Horton’s or the guarantors’ position, so the guarantors remained liable.

Real world impact

The ruling means small procedural changes in transfer paperwork that preserve the agreement’s substance usually will not free people who guaranteed performance. Sellers can still enforce bonds when the intended construction and reconveyance plan is honored in substance. The judgment was affirmed.