Case Title: HANSEN v. LITTLE BEAR INN CO.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2000-07-18T00:00:00Z

Document:
HANSEN v. LITTLE BEAR INN CO.2000 WY 1529 P.3d 960Case Number: 99-186 99-187Decided: 07/18/2000Supreme Court of Wyoming
 
WILLIAM D. HANSEN, 
Appellant (Plaintiff),v. LITTLE BEAR INN COMPANY, a 
Wyoming corporation, and BARBARA BOLING, in her individual capacity, Appellees 
(Defendants).

LITTLE BEAR INN COMPANY, 
a Wyoming corporation, and BARBARA BOLING, in her individual capacity, 
Appellants (Defendants),v. WILLIAM D. HANSEN, Appellee 
(Plaintiff).

Appeal from the District 
Court of Laramie County, The Honorable Nicholas G. Kalokathis, 
Judge.

Representing 
William D. Hansen: Don W. Riske and James 
R. Salisbury of Riske & Arnold, P.C., Cheyenne, Wyoming. Argument by Mr. 
Riske.Representing Little Bear Inn Company and Barbara Boling: Terry 
W. Mackey and David Evans of Hickey, Mackey, Evans & Walker, Cheyenne, 
Wyoming. Argument by Mr. Evans.

BEFORE 
LEHMAN, C.J., THOMAS, MACY,* GOLDEN, and HILL, 
JJ.

* Retired June 2, 
2000.

GOLDEN, 
Justice.

[¶1] Appellant 
William D. Hansen contests the district court's denial of his claim for contract 
rescission for mutual mistake, finding Appellee Richard K. Boling1 did not breach the parties' 
contract and an award of costs and attorneys' fees is not warranted. Boling 
appeals the district court's denial of his counterclaim that Hansen's failure to 
discharge the mortgage underlying the parties' agreement is 
actionable.

[¶2] We 
affirm.

ISSUES

[¶3] Hansen 
presents the following issues for our consideration in Case 

[¶4] No. 
99-186:

I. Whether the District 
Court erred in ruling that Appellant failed to carry his burden of proving 
mutual mistake of the parties as a basis for his claim of rescission of the 
Stock Agreement.

II. Whether the District 
Court erred in denying Appellant's Motion for Summary Judgment on his claim for 
breach of contract.

III. Whether the District 
Court erred in holding that there was an implied term in the Stock Agreement, 
the failure of which effectively excused performance by Appellee 
Boling.

IV. Whether Appellant is 
entitled to an award of all costs and attorneys' fees incurred as a result of 
Appellee's default and breach of contract, as provided for in the Stock 
Agreement and transaction documents.

[¶5] On the 
issue of the counterclaim, Case No. 99-187, Hansen states the issue 
as:

[¶6] Whether the 
proposed tender of payment by Richard Boling warranted release of the mortgage 
in favor of William Hansen encumbering the real property of Little bear Inn 
Company.

[¶7] Appellees 
Little Bear Inn Company and Richard K. Boling present the following issues in 
Case No. 186:

I. Did Appellee's 
inability to be underwritten for life insurance breach the Agreement For Sale of 
Corporate Stock?

II. Does the Mortgage 
herein relate to any obligation but the payment of the Promissory Note 
herein?

III. Was there an 
assumption by the parties that Appellee would be able to purchase life 
insurance, and if so, does such an assumption meet the elements of a mutual 
mistake qualifying the contract for rescission?

IV. Did Appellee's 
efforts to be underwritten for life insurance breach the implied contractual 
duty of good faith and fair dealing?

V. Are Appellants 
entitled to attorney fees and costs?

[¶8] On the 
counterclaim, Case No. 99-187, Boling and Little Bear Inn Company 
ask:

I. Does a proper tender 
of payment of amounts due under a mortgage meet the requirements of Wyoming 
Stat. Ann. 34-1-132?

FACTS

[¶9] In 1994, 
William D. Hansen and Richard K. Boling purchased stock of the Little Bear Inn 
Company (LBI) from the McIntyres. The purchase was secured with a 15-year note, 
personally guaranteed by Hansen and Boling. The stock was assigned to Hansen and 
Boling and held as collateral by the bank for the McIntyres. Hansen became the 
majority stockholder, owning 62% of the stock.

[¶10] On 
February 27, 1998, the parties executed an Agreement for Sale of Corporate 
Stock, and Boling purchased Hansen's stock interest for $205,000, secured by a 
promissory note from LBI and Boling in the amount of the purchase price and a 
mortgage on the property. Paragraph No. 6 of the Agreement states the 
following:

[¶11] 6. LIFE 
INSURANCE. The Purchaser shall, within ten (10) days following closing, purchase 
and shall thereafter for the term of the Promissory Note maintain term life 
insurance upon his life in an amount of not less than Two Hundred Five Thousand 
Dollars ($205,000.00). Said insurance shall name Seller as the beneficiary of 
such policy and coverage amount. A copy of such insurance policy and all 
renewals thereof shall promptly be delivered to the Seller. Failure to comply 
with this requirement by Purchaser shall constitute a material breach of this 
Agreement. Said insurance shall be "declining balance" insurance wherein Seller 
receives only the amount necessary to pay the principal balance hereunder with 
the remaining proceeds going to a beneficiary designated by Purchaser. Purchaser 
is relieved from this obligation if he cannot locate a company willing to 
underwrite said insurance for less than $150.00 per month for the initial 
premium. In the event that Purchaser is unable to locate a company which offers 
such insurance for $150.00 or less per month premium, he shall notify Seller of 
such fact and the amount of the premium which is required and Seller may elect, 
in writing, to agree to pay any difference between the required premium and 
$150.00 per month. Purchaser agrees to secure such insurance and keep it current 
as long as Seller pays any additional premium.

[¶12] Two days 
following the agreement to purchase Hansen's stock, Boling met with an insurance 
agent, completed an application for a life insurance policy and executed a 
collateral assignment to Hansen on approval of his application. Based on blood 
tests indicating high cholesterol and liver enzymes, Boling was informed he was 
uninsurable. He then sought medical treatment and was prescribed medication and 
a diet regimen. Subsequent blood tests showed decreased levels, but not enough 
to secure a policy. A pool of 130 insurance companies declined coverage, as did 
five substandard brokerage companies. A second insurance agent solicited 
policies from high-risk brokerage companies without success. Boling informed 
both agents they should consider polices above the Agreement's $150 monthly 
premium limit, if need be. Boling pursued the purchase of life insurance for 
eight months, receiving the last insurance application rejection on November 3, 
1998.

[¶13] On August 
18, 1998, Hansen filed a Complaint for Judgment alleging a material breach of 
the Stock Agreement by Boling. On February 25, 1999, the district court denied 
Hansen's motion for summary judgment, finding a genuine issue of material fact 
regarding whether Boling used reasonable efforts to procure a life insurance 
policy and "what result should obtain if Boling is 
uninsurable."

[¶14] On March 
5, 1999, Boling notified Hansen he was ready to pay off the entire principal and 
interest due on the mortgage, evidenced by a letter from a bank indicating funds 
would be available immediately, provided a release of mortgage was given by 
Hansen. Hansen refused to release the mortgage.

[¶15] On March 
12, 1999, Hansen filed an Amended Complaint alleging breach of contract, 
rescission of contract through mutual mistake of fact, breach of implied 
covenant of good faith and fair dealing, and costs of collection and attorney's 
fees. Boling counterclaimed, alleging Boling and LBI offered to pay the 
promissory note in full, based on a commitment from the bank to loan the money 
upon the release of Hansen's mortgage, and that Hansen refused the offer, in 
violation of Wyo. Stat. Ann. § 34-1-132.

[¶16] At trial 
on March 24, 1999, Boling testified he had secured a written commitment of funds 
from a bank to buy out Hansen by November 6, 1998, and attempted to have Hansen 
removed from his personal guarantee with the McIntyres, though the McIntyres 
refused. Hansen and Boling both testified that on the date they entered into the 
agreement for purchase of Hansen's stock, neither had knowledge of any sort that 
would lead them to believe Boling would not be able to qualify for insurance 
coverage. When Hansen was asked why he agreed to the provision in Paragraph 6, 
which states: "Purchaser is relieved from this obligation if he cannot locate a 
company willing to underwrite said insurance for less than $150.00 per month for 
the initial premium," Hansen responded he was concerned about the cost to 
Boling, although he did not think the insurance would be so expensive that 
Boling could not afford it.

[¶17] Concluding 
Boling had used reasonable efforts to secure a life insurance policy, the 
district court denied Hansen's complaint, finding no breach of contract or 
implied covenant of good faith and fair dealing. The trial court also found an 
award of attorney's fees and costs was unwarranted and that Hansen had failed to 
carry his burden for rescission of the contract based on mutual mistake. In 
denying Boling's counterclaim, the district court concluded Wyo. Stat. Ann. § 
34-1-132 was designed to provide a remedy for mortgagors who have satisfied all 
conditions of the mortgage, but face a recalcitrant mortgagee. The trial court 
determined Boling did not render full performance, but only offered to do so, 
making the statute inapplicable. The district court concluded the parties were 
left in the same position as before the litigation, with the bargain still in 
force, except for Boling's obligation to secure life insurance, which had been 
fulfilled.

DISCUSSION

Standard of 
Review

[¶18] At issue 
is the construction and resulting interpretation of Paragraph No. 6 of the 
parties' written Agreement for Sale of Corporate Stock, which this Court reviews 
as a matter of law. Mathis v. Wendling, 962 P.2d 160, 163 (Wyo. 1998); Sanchez 
v. Life Care Centers of America, 855 P.2d 1256, 1257 (Wyo. 1993). In so doing, 
we review, de novo, the district court's conclusions of law. Saulcy Land Co. v. 
Jones, 983 P.2d 1200, 1203 (Wyo. 1999).

[¶19] As we 
interpret the Agreement, we are mindful that our primary focus is the intent of 
the parties. Wolter v. Equitable Resources Energy Co., 979 P.2d 948, 951 (Wyo. 
1999) (citing Woods Petroleum Corporation v. Hummel, 784 P.2d 242, 243 (Wyo. 
1989)). If the document is clear and unambiguous, we review the four corners of 
the Agreement to determine the parties' intent. Sierra Trading Post, Inc. v. 
Hinson, 996 P.2d 1144, 1148 (Wyo. 2000). Ambiguity is found if indefiniteness of 
expression or double meaning obscure the intent of the parties, though 
disagreement between the parties as to the Agreement's meaning does not give 
rise to an ambiguity. Wolter, 979 P.2d  at 951 (citing Svalina v. Split Rock Land 
and Cattle Co., 816 P.2d 878, 881 (Wyo. 1991)); Mathis, 962 P.2d  at 
163-64.

Mutual 
Mistake

[¶20] When there 
is mutual mistake, there is no mutual assent of the parties. Shrum v. 
Zeltwanger, 559 P.2d 1384, 1387 (Wyo. 1977). "A mutual mistake is one which is 
reciprocal and common to both parties with each party being under the same 
misconception as to the terms of the written instrument." Patel v. Harless, 926 P.2d 963, 966 (Wyo. 1996) (citing Shrum, 559 P.2d at 1386). We have 
said:

[¶21] When a 
mistake in a writing is claimed, the burden rests on the party claiming the 
mistake to establish by evidence that is clear, satisfactory and convincing that 
the contract as written does not contain the agreement entered into between the 
parties; that the mistake was mutual; and that it did not occur by or result 
from negligence of the party claiming it.

[¶22] Patel, 926 P.2d  at 966 (quoting Schultz v. Miller, 837 P.2d 71, 76 (Wyo. 1992)); Pfister v. 
Brown, 498 P.2d 1243, 1245 (Wyo. 1972)).

[¶23] Upon 
finding a mutual mistake exists, the Court may reform or cancel the contract. 
Mathis, 962 P.2d  at 164 (citing Patel, 926 P.2d at 966). This Court has 
determined the elements of a mutual mistake:

[¶24] The 
essential elements of mutual mistake in a written instrument for which a court 
of competent jurisdiction may grant appropriate relief are that there was an 
antecedent agreement which the written instrument undertakes to evidence; that a 
mistake occurred in the drafting of the instrument and not in the antecedent 
agreement which it undertakes to evidence; and that in the absence of fraud or 
inequitable conduct on the part of one of the parties, the mistake was 
mutual.

[¶25] Mathis, 
962 P.2d  at 164 (citing Schultz, 837 P.2d at 74).

[¶26] The 
Restatement (Second) of Contracts § 151 (1981) defines mistake as "[a] belief 
[that] is not in accord with the facts." Comment a to this section makes 
clear:

[¶27] The word 
"mistake" is not used here, as it is sometimes used in common speech, to refer 
to an improvident act, including the making of a contract, that is the result of 
such an erroneous belief. This useage is avoided here for the sake of clarity 
and consistency. Furthermore, the erroneous belief must relate to the facts as 
they exist at the time of the making of the contract. A party's prediction or 
judgment as to events to occur in the future, even if erroneous, is not a 
"mistake" as that word is defined here.

[¶28] 
Restatement (Second) of Contracts § 151 cmt. a (1981).

[¶29] Although 
the parties' Agreement addressed their concern over the eventual cost of an 
insurance policy for Boling, they failed to consider that Boling would not be 
able to obtain insurance under any condition at any price. Neither party 
believed, before entering into the Agreement, Boling would be uninsurable prior 
to entering into the Agreement, and Hansen did not investigate this possibility 
before the Agreement was executed. The parties have simply failed in the 
Agreement to provide for this eventuality. We find, as did the district court, 
the failure to adequately predict this result is not a mistake of the parties, 
but merely poor prognostication. Mutual mistake of fact does not 
exist.

[¶30] Breach of 
Contract and Breach of Implied Covenant of Good Faith and Fair 
Dealing

[¶31] The 
district court concluded that the omission of an essential term addressing the 
uninsurability of Boling rendered the insurance clause of Paragraph No. 6 
ambiguous, thus permitting the court to infer a term which is reasonable under 
the circumstances. Determining that a reasonable term can be inferred from the 
implied covenant of good faith and fair dealing, the district court resolved 
that Boling was under a duty to use reasonable efforts to secure insurance and 
did so. Thus, no breach of contract or covenant of good faith and fair dealing 
was found.

[¶32] When the 
parties to a bargain sufficiently defined to be a contract have not agreed with 
respect to a term which is essential to a determination of their rights and 
duties, a term which is reasonable in the circumstances is supplied by the 
court.

[¶33] 
Restatement (Second) of Contracts § 204 (1981).

"Every contract is deemed 
to contain an implied term of good faith and fair dealing." Roussalis v. Wyoming 
Medical Center, No. 96-219, slip op. at 39, 2000 WL 424323 (April 20, 2000); see 
Wilder v. Cody Country Chamber of Commerce, 868 P.2d 211 (Wyo. 1994); McIlravy 
v. Kerr-McGee, 119 F.3d 876, 882 (10th Cir. 1997). We have defined good faith to 
mean:

[F]aithfulness to an 
agreed common purpose and consistency with the justified expectations of the 
other party; it excludes a variety of types of conduct characterized as 
involving `bad faith' because they violate community standards of decency, 
fairness or reasonableness.

[¶34] Wilder, 
868 P.2d  at 220 (citing Restatement (Second) of Contracts § 205 at 100, cmt. a 
(1981)); McIlravy, 119 F.3d  at 882.

[¶35] Common 
sense and good faith are leading precepts of contract construction, and we 
employ these measures in our effort to construe the parties' agreement. Polo 
Ranch Company v. City of Cheyenne, 969 P.2d 132, 136 (Wyo. 1998) (citing 
Moncrief v. Louisiana Land & Exploration Co., 861 P.2d 516, 524 (Wyo. 
1993)); Klutznick v. Thulin, 814 P.2d 1267, 1270 (Wyo. 
1991).

[¶36] Boling 
spent eight months in the pursuit of life insurance with two different insurance 
agents, shopping numerous insurance companies, as well as submitting to life 
style changes and medication to improve his insurability. Absent a clause in the 
Agreement to provide for his uninsurablility, we conclude, as did the district 
court, Boling was required to employ reasonable efforts to procure life 
insurance. We agree Boling was faithful and reasonable in his efforts, and no 
breach of the implied covenant of good faith and fair dealing 
occurred.

Costs and Attorney's 
Fees

[¶37] Having 
determined no mutual mistake exists, or breach of contract or implied covenant 
of good faith and fair dealing, an award of costs and attorney's fees is 
unwarranted.

Summary 
Judgment

[¶38] We dispose 
of Hansen's appeal of the denial of his motion for summary judgment by noting 
such denial is not a final order and, therefore, not appealable. Wolter, 979 P.2d  at 953; State Farm Mutual Automobile Insurance Company v. Shrader, 882 P.2d 813, 820 (Wyo. 1994); Kimbley v. City of Green River, 663 P.2d 871, 888 (Wyo. 
1983). 

Boling's 
Counterclaim

[¶39] Boling 
claims that Hansen's refusal to discharge the mortgage following his 
presentation of a letter from the bank guaranteeing payment on the note is, by 
statute, actionable. Wyo. Stat. Ann. § 34-1-132(a) (Lexis 1999) states the 
following:

(a) A mortgagee shall, 
within thirty (30) days after having received by certified or registered mail a 
request in writing for the discharge or release of a mortgage, execute and 
acknowledge a certificate or deed of discharge or release of the mortgage if 
there has been full performance of the condition of the mortgage and if there is 
no other written agreement between the mortgagee and mortgagor encumbering the 
property subject to the mortgage.

[¶40] (emphasis 
added). Clearly, this provision requires the note to be paid in full before a 
mortgagee must release the mortgage.

[¶41] On March 
5, 1999, in a letter to Hansen, Boling stated he and LBI "stand ready to pay off 
the entire principal and interest due" on the mortgage. Attached to the letter 
is a letter from the bank to Boling, stating the bank "can close the loan to 
Little Bear Inn Inc. and the funds would be available immediately, as long as 
there is a release of mortgage from William D. Hansen." We find, as did the 
district court, these letters provided by Boling evidence merely an offer to 
render full performance. Boling has not satisfied the note and therefore cannot 
claim that Hansen's failure to discharge the mortgage in this circumstance is 
actionable under Wyo. Stat. Ann. § 34-1-132.

CONCLUSION

[¶42] We affirm 
the district court's finding that no mutual mistake of fact exists. We hold that 
Boling did not default on the contract, nor did he breach the implied covenant 
of good faith and fair dealing, and, therefore, the claim for costs and 
attorney's fees are not warranted. Denial of Hansen's motion for summary 
judgment is not appealable. Hansen's failure to discharge the note is not 
actionable under Wyo. Stat. Ann. § 34-1-132 as Boling has not rendered full 
performance on the note; he only offered to. The parties are returned to their 
pre-litigation positions, and the Agreement continues to be in full force and 
effect.

FOOTNOTES

1 Richard K. 
Boling died on April 6, 2000. On June 27, 2000, this Court entered an Order 
Allowing Substitution of Party naming Barbara Boling, personal representative of 
the estate of Richard K. Boling, as Appellee. However, for purposes of this 
opinion, we will continue to refer to Richard K. Boling as 
Appellee.