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SEPTEMBER 07, 1988




This appeal arises from a suit by Frank and Denise McCain, the purchasers, for rescission of a deed, note and deed of trust on the ground that James P. Knight, Jr., the seller, breached a real estate contract to return their money if they could not get a building permit. The Chancery Court of Hinds County cancelled the deed, note, and deed of trust and granted plaintiffs a judgment for refund of the purchase price and other damages.

From this order, Knight appeals, and assigns the following as error:

 (1) The chancery court erred in finding as a

 fact that appellant had adopted or became bound by a contract between appellees and the Johnsons.

 (2) The chancery court erred in failing to apply the doctrine of merger to hold that a pre-existing agreement is merged into a deed and may no longer be separately enforced.

 (3) The chancery court erred in granting equitable relief to appellees, particularly in view of the fact that any damages incurred by appellees were the results of their own actions or failures to act.

 (4) The chancery court erred in granting of a contested preliminary injunction to appellees without a hearing.

 Of necessity, the recital of the facts of this case are lengthy and detailed.

 On April 5, 1983, Hinds County had sued Ben Johnson for failing to develop Timberlake in accordance with Hinds County ordinances. Knight, who was Johnson's friend and attorney, represented Johnson in that litigation. The mandatory injunction, dated April 18, 1984, ordered Johnson to do all things necessary to bring Timberlake Place into compliance with the Hinds County Ordinance governing the subdivision of land. On appeal, this Court affirmed the chancellor. Johnson v. Hinds County, 524 So. 2d 947 (Miss. 1988).

 As a result of the litigation and other matters, Johnson became financially strapped. He borrowed $25,000 from Knight in return for a deed (as collateral) dated September 26, 1983 on the land. The deed was recorded on the land records of Hinds County on September 27, 1983. Knight acknowledged, without dispute, that the deed represented only collateral for the debt and that the land would be reconveyed to Johnson upon repayment. Knight borrowed the money from the bank and used the property transferred as security. The original note was for six months and was extended for an additional six months when Johnson was unable to repay Knight, but was finally paid off after a year by funds which Knight took from his personal profit sharing plan, now named Knight & Knight Retirement Trust. Knight stated that when Johnson was unable to repay the $25,000, Knight regarded the land as his property. He obviously did not have to foreclose anything because there was no deed of trust.

 However, Knight operated under an oral understanding

 that Johnson could pay him off anytime and buy the land back for $25,000 plus interest. Johnson showed Knight three contracts and informed him that the down payment from the contract with the McCains, plus down payments on two additional sales contracts, would provide the necessary funds to repurchase the McCain property from Knight. Knight was aware that Johnson was marketing the property and specifically negotiating with the McCains.

 In October, 1984, Frank and Denise McCain began to look for property on which to build a home. They contacted Ben Johnson in response to a newspaper advertisement of acreage for sale in rural Hinds County in an area commonly called Timberlake Place Subdivision. Timberlake is a large tract of land that Ben Johnson bought and from which he sold smaller residential lots. The McCains made numerous trips to visit the property and to discuss terms. Johnson, who had built a home for himself in the subdivision, always advised the McCains that he owned the property. In November, 1984, the parties tentatively agreed on a price of $50,000 for a twelve acre tract of land. The McCains agreed to pay $10,000 down, and the Johnsons agreed to owner-finance the $40,000 balance. Johnson filled out the contract of purchase, and the McCains watched as both Mr. and Mrs. Johnson signed the contract. Johnson lined through the printed word "broker" on the contract form and inserted in the word "owner" under his name. At this time, a $500 check for earnest money was given to the Johnsons. The McCains were not certain if they signed the contract in November, 1984, or on February 13, 1985. The two couples became friends.

 During the negotiations, the McCains advised Johnson that they had heard from relatives that there was a problem securing building permits on the property. Johnson then acknowledged certain problems with the County Board of Supervisors, but assured them that there would be no problem with the permit acquisition. Johnson guaranteed the McCains that if they encountered any problems, he "would refund all [their] money and it would not cost a dime to own the property." Johnson inserted the following provision into the contract: "In the event county does not issue building permit, all monies will be refunded."

 Without dispute, the McCains signed the contract no later than February 13, 1985, on which date they gave Ben Johnson a check for $10,000 made payable to his lawyer, James P. Knight, Jr., as down payment. The McCains did not know why the check was made payable to Knight. Ben Johnson died four days later. After the funeral Mrs. Johnson found the check at her house and turned it over to Knight, her

 attorney. Mrs. Johnson then contacted the McCains and asked whether they were still interested in the land. When Mr. McCain said that they were, Mrs. Johnson replied that Knight would be getting in touch with him.

 Knight contacted the McCains to sign the rest of the papers that had not been completed before Johnson's death. Denise McCain stated that Knight did not identify his connection with the property.

 Knight used the sales contract to dictate a note, deed of trust and deed. The McCains went to Knight's office on March 5, 1985. While there, they noticed that the note called for monthly payments. Although the contract did call for monthly payments, the McCains told Knight that Johnson had agreed to change the provision to semi-annual payments. Knight agreed, and the provision was changed. At the same meeting, the McCains expressed some concern about obtaining a building permit. Knight recommended that they contact Jack Price, attorney for Hinds County, regarding the building permit. Knight also suggested that the McCains take the documents from his office and show them to their attorney. Knight never advised the McCains that he had no intention to be bound by the contract signed by Johnson as owner. The McCains took the documents with the intention of having them reviewed by an attorney. They wanted to show the documents to a friend who was an Internal Revenue Service attorney. They did not see the attorney, but did speak to him on the phone.

 Knight then mailed the McCains copies of a new set of documents. The McCains took them back to Knight's office on April 5, 1985. Knight signed the deed, and the McCains signed the note and deed of trust. The McCains gave Knight a new check for $10,000 as the down payment and received their old check back.

 The McCains believed that Knight was the attorney for Johnson's estate and that they were purchasing the property from the estate. The deed shows that the conveyance was from "James P. Knight, Jr., as nominee in title for Knight & Knight Retirement Trust." Mrs. McCain stated that they paid no attention to the name on the deed and did not actually know what it meant. She further stated that they had never bought land before, did not know anything about "legal stuff" and assumed that Knight was handling the estate for Mrs. Johnson.

 Eight months after the sale, Knight wrote the McCains, stating that "the contract for sale ...

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