Case Title: MILLHEISER AND BORRONI v. WALLACE AND WALLACE

Citation: 

Docket Number: 00-194

State: wyoming

Court: Wyoming Supreme Court

Date: 2001-04-19T00:00:00Z

Document:
MILLHEISER AND BORRONI v. WALLACE AND WALLACE2001 WY 4021 P.3d 752Case Number: 00-194Decided: 04/19/2001

APRIL TERM, A.D. 2001

                                                                                                        

 

MICHAEL 
MILLHEISER and DANA

BORRONI, 
husband and wife,

Appellants(Plaintiffs),

 

v.

 

BOBBY J. 
WALLACE and BRIDGET W.

WALLACE, 
husband and wife,

Appellees(Defendants).

  

Appeal 
from the District Court of Laramie County

The 
Honorable Edward L. Grant, Judge

 

Representing 
Appellants:

            
Georg Jensen of Law Offices of Georg Jensen, Cheyenne, Wyoming  

 Representing 
Appellees:

            
William D. Bagley, Cheyenne, Wyoming  

  

Before 
LEHMAN, C.J., and GOLDEN, HILL, and KITE, JJ.

             
KITE, Justice.

 

[¶1]      Michael 
Millheiser and Dana Borroni (the buyers) purchased certain real property from 
Bobby J. and Bridget W. Wallace (the sellers) on a contract for deed with the 
expressed intention of using the property for commercial purposes.  After the execution of the contract, the 
homeowners' association objected to any commercial use as precluded by the 
covenants.  The buyers ceased making 
payments under the contract.  When 
the court confirmed commercial use was not allowed by the covenants, the buyers 
sought and were granted rescission of the contract and restitution of their 
money paid under the contract.  The 
district court declined to award interest or costs, and the buyers appealed that 
decision.  We affirm the district 
court's exercise of discretion.

 

 

ISSUE

 

[¶2]      The buyers 
present the following issue:

 

1.  Did 
the court err in failing to award pre-judgment interest on a summary judgment in 
favor of the [buyers] on a liquidated sum due the [buyers] as a result of court 
ordered rescission?

 

The 
sellers rephrase the issue:

 

Whether 
as a matter of law [the buyers] are entitled to prejudgment interest on the 
Judgment entered by the District Court, May 19, 2000, or in the alternative, 
does the District Court have discretion to award or not award costs and 
interest[?][1]

 

 

FACTS

 

[¶3]      The real property 
in issue is located west of Cheyenne in Laramie County in a subdivision known as 
Granite Springs Retreat. The land was subdivided by the original owner, Lorenz 
Ranch, Inc., and Deward Miller purchased the property in 1976. A Declaration of 
Protective Covenants, executed by Granite Springs Retreat which appeared to be 
the sole proprietorship of Deward Miller, was filed.  Paragraph 26 of the original covenants 
provided in pertinent part:

 

            
RIGHT OF SUBDIVIDER:  
Subdivider, its successors or assigns, expressly reserve the right 
to:

            
a. From time to time amend or revoke any protective covenants then in 
existence, but no such amendment or revocation shall apply to any tracts that 
are sold prior thereto without the written consent of a majority of the then 
owners of any such tracts.

 

            
. . . .

 

d. To specify that covenants do not 
apply to certain tracts designated by the Subdivider for special use.  

 

 [¶4]     Miller transferred 
title of all the property in 1977 to Happy Jack Stable and Lounge, Inc. of which 
he was an officer.  In 1978, Miller 
attempted to amend the covenants by recording an Amended Declaration of 
Protective Covenants, which purported to allow the west one-half of Tract 4 and 
all of Tract 5 to be sold or developed for business or commercial use.  However, the document was executed by 
"Granite Springs Retreat by Deward H. Miller."  Neither Granite Springs Retreat nor 
Miller owned any interest in the property at the time the amended covenants were 
executed and filed.

 

[¶5]      Happy Jack Stable 
and Lounge sold Tract 5 to the sellers in 1993, and in 1996 the sellers sold 
Tract 5 to the buyers, who claimed to have purchased the property with the 
understanding there was no restriction on commercial use.  The sellers admitted the price paid was 
based in part on the commercial nature of the property.  Apparently, upon hearing of a proposed 
commercial use of Tract 5, Granite Springs Retreat Association, a nonprofit 
organization of the homeowners, objected and filed an Affidavit Affecting Title 
stating the amended covenants were void.  
The buyers made payments under the contract until September 1997 when 
they ceased to make further payments claiming the property could not be used for 
the purposes for which it had been purchased.  The sellers claimed the payments made as 
damages for breach of contract, and the deed was released from escrow to 
them.

 

[¶6]      Litigation ensued 
involving Granite Springs Retreat Association, Miller, Happy Jack Stable and 
Lounge, the sellers, and the buyers with claims, counterclaims, and cross-claims 
concerning the efficacy of the amended covenants and various tort and contract 
claims.  On May 19, 1999, the 
district court, on motions for summary judgment, held the attempted amendment of 
the covenants was void and Tract 5 could not be used for commercial 
purposes.   No appeal was taken 
from that decision.  The court 
proceeded to consider further summary judgment motions concerning the legal 
impact the first decision had upon the contract for deed between the buyers and 
the sellers.  On March 27, 2000, the 
district court granted the buyers summary judgment finding a mutual mistake of 
fact concerning the allowed use of the property for commercial purposes 
entitling the buyers to rescission of the contract.  No appeal was taken from this 
decision.

 

[¶7]      As a part of the 
remedy of rescission, the district court found that the buyers were entitled to 
restitution of the benefits they had conferred upon the sellers.  The benefits identified included return 
of the down payment and all other payments made to the sellers.  However, the district court declined to 
award the buyers prejudgment interest on those monies or costs.  The court found prejudgment interest was 
not required by statute and this was not a circumstance under Restatement 
(Second) of Contracts § 354 (1981) which allowed prejudgment interest.  In addition, the court held that neither 
party was a "prevailing party" and, consequently, the parties should bear their 
own costs.  See Wyo. Stat. 
Ann. § 1-14-126(a) (LEXIS 1999).  
The buyers appealed this final judgment.

 

 

STANDARD 
OF REVIEW

 

[¶8]      

"It is 
the general rule that a party seeking to rescind a contract must return the 
opposite party to the position in which he was prior to entering into the 
contract.  However, this is not a 
technical rule, but rather it is equitable and requires practicality in 
readjusting the rights of the parties.  
The standard used is substantial restoration of the status quo.'   How this is to be accomplished, or 
indeed whether it can, is a matter which is within the discretion of the trial 
court, under the facts as found to exist by the trier of the fact."  (Citations omitted.)  Smith v. Huber, Colo. App., 666 P.2d 1122, 1124-1225 (1983).

 

Walter 
v. Moore, 700 P.2d 1219, 1228 (Wyo. 1985).

 

[¶9]      This court has 
settled on the standard of an abuse of discretion as reaching the question of 
reasonableness of the choice made by the district court.  Smith v. State ex rel. Wyoming 
Department of Transportation, 11 P.3d 931, 935 (Wyo. 2000); Vaughn v. 
State, 962 P.2d 149, 151 (Wyo. 1998).  
Judicial discretion is a composite of many things, among which are 
conclusions drawn from objective criteria; it means exercising sound judgment 
with regard to what is right under the circumstances and without doing so 
arbitrarily or capriciously.  
Id.

 

            

DISCUSSION

 

[¶10]   Wyoming statutes provide for 
interest on judgments but do not specifically address an award for prejudgment 
interest. Wyo. Stat. Ann. § 1-16-102 (LEXIS 1999).   However, it has been recognized as 
an appropriate element of damages in some cases.  See Horseshoe Estates v. 2M Company, 
Inc., 713 P.2d 776, 781-82 (Wyo. 1986).  This court has approved of the award of 
prejudgment interest on liquidated sums in breach of contract actions when the 
amount due is readily computable by simple mathematical calculation.  United Pacific Insurance Company v. 
Martin and Luther General Contractors, Incorporated, 455 P.2d 664, 677 (Wyo. 
1969); Laramie Rivers Company v. Pioneer Canal Company, 565 P.2d 1241, 
1245 (Wyo. 1977).  Interest 
generally is computed from the time notice is given of the claim.  Rissler & McMurry Company v. 
Atlantic Richfield Company, 559 P.2d 25, 34 (Wyo. 
1977).

 

[¶11]   Prejudgment interest has also been 
recognized as appropriate in certain cases dealing with the rescission of 
contracts. See Racicky v. Simon, 831 P.2d 241 (Wyo. 1992).  Upon finding conditions appropriate, 
courts generally employ the equitable remedy of restitution in an attempt to 
return the parties to the status quo.  
"A party who has avoided a contract on the ground of lack of capacity, 
mistake, misrepresentation, duress, undue influence or abuse of a fiduciary 
relation is entitled to restitution for any benefit that he has conferred on the 
other party by way of part performance or reliance."  Restatement (Second) of Contracts § 
376  at 222 (1981).   "In an action of restitution in 
which the benefit received was money, the measure of recovery for this benefit 
is the amount of money received."  
Restatement of Restitution § 150 at 597 (1937).  Where a mistake occurs concerning the 
nature of the property intended to be conveyed, we have approved rescission of 
the contract and the return of any monies paid pursuant to said contract in the 
interest of fairness.  Hagar v. 
Mobley, 638 P.2d 127, 133 (Wyo. 1981).    

 

[¶12]   Prejudgment interest is one element 
to be considered by the court in determining the appropriate restitution when a 
contract is rescinded.  This court 
first considered, and approved of, prejudgment interest in a case involving 
rescission of a real estate sales contract in Mader v. James, 546 P.2d 190 (Wyo. 1976).  The district court 
found the sale fell through as a result of the failure of the seller to perform 
and prejudgment interest was appropriate.  
Where the contract provided for rescission under certain circumstances, 
we have upheld the award of prejudgment interest from the date of notice of the 
existence of those appropriate circumstances.  Holst v. Guynn, 696 P.2d 632, 635 
(Wyo. 1985) (interest granted on earnest money from date seller notified buyer 
could not obtain financing).

 

[¶13]   In this case, interest was an 
appropriate consideration for the district court.  However, after considering all the facts 
and circumstances, the district court exercised its equitable discretion and 
concluded interest was "unwarranted."  
In awarding rescission, the court found that both parties entered the 
transaction with the assumption the amended covenants governed the permissible 
use of the land and made no finding that either party was at fault for that 
mistake.  In crafting the remedy of 
restitution, the court declined to award the buyers any "consequential damages 
relating to their misconception." It appears from the record the court attempted 
to restore the parties to their condition 
prior to execution of the contract without imposing a penalty on either for the 
failed transaction.  That was an 
appropriate exercise of the court's discretion.

 

[¶14]   As noted above, in Walter, 
700 P.2d 1219, a similar case where a land sale was rescinded due to mutual 
mistake concerning the allowable uses of the property, a comparable exercise of 
discretion was affirmed.  In that 
case, after taking possession of the property, the buyers discovered a septic 
tank could not be installed because the property was located in the flood plain 
and, consequently, the property could not be occupied as a residence.  We held restoration of the parties to 
status quo is an essential part of contract rescission.  The rule of restoration is an equitable 
rather than a procedural remedy, and, therefore, it must be reasonably applied 
and construed.  Walter, 700 P.2d  at 1228; see 17A Am. Jur. 2d Contracts § 592 
(1991).  Whether the parties can be 
substantially returned to their positions prior to entering the contract, and 
the means necessary to accomplish this outcome, is within the discretion of the 
district court under the facts as found to exist by the trier of fact.  See Walter, 700 P.2d  at 
1228.  The sellers in Walter 
were allowed a setoff for the rental value of the trailer on the property 
against the amount they were required to pay back to the buyers, but they were 
not allowed a setoff for the value of the use of the property 
itself.  On the other side of the 
transaction, the court did not allow the buyers to be reimbursed for property 
taxes paid, appreciation in the value of the property during their possession, 
or interest on the amounts they had paid.  
We concluded, "The trial court acted 
equitably in attempting to return the parties to status quo and therefore the 
amounts awarded were adequate."  
Id.  That same 
conclusion applies here.

 

[¶15]   Affirmed.

 

FOOTNOTES

1The buyers did not appeal the portion of 
the district court decision which concluded each party should bear its own 
costs.  For this reason, we decline 
to address the issue of costs raised for the first time in the sellers' 
brief.