No. 81-303 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1981 

JAMES A. WOODAHL and BARBARA A. 

WOODAHL, husband and wife, 

Plaintiffs and Appellants, 

VS. 

CAROLYN K. MATTHEWS , 

Defendant and Respondent. 

Appeal from: District Court of the Eighth Judicial District, 

In and for the County of Cascade 

Honorable John McCarvel, Judge presiding. 

Counsel of Record: 

For Appellants: 

Smith, Baillie & Walsh, Great Falls, Montana 

For Respondent: 

Scott, Linnell & Newhall, Great Falls, Montana 

Submitted on briefs: November 5, 1981 

Decided: February 3, 1982 

Filed: FE0 3 - 1982 
Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of 

the Court. 

Plaintiffs, James and Barbara Woodahl appeal a final 

judgment entered by the District Court of the Eighth Judicial 

~istrict denying their claim for rescission and ordering the 

specific performance of a contract between plaintiffs and 

defendant, Carolyn K. Matthews. 

James Woodahl, an active real estate developer working 

primarily in Great Falls and Billings, developed the Park 

Plaza residential condominiums in Great Falls. Barbara 

Woodahl is James' wife. 

Carolyn Matthews was the owner of a house at 1909 

Eleventh Street Southwest, Great Falls, Montana. She had 

been a real estate sales person for approximately six months 

when she was approached by an agent of the Woodahls regarding 

the opportunity to purchase a Park Plaza Condominium. 

Negotiations commenced between the two parties in late 

1979. The negotiations resulted in a series of agreements 

being entered into on January 8, 1980, whereby the Woodahls 

would lease units 7A and 4C of Park Plaza to Matthews in 

exchange for Matthews selling the Woodahls her home. The 

lease for 7A contained an option to purchase the unit on 

February 1, 1981. The option was to be exercised by Matthews' 

forgiving the obligation of the Woodahls under their promissory 

note on the house. 

On February 13, 1980, the Woodahls, their interior 

decorator, Tom Matsko, and Richard Newman, a building contractor, 

entered the house to gather information for remodeling 

purposes. While in the upstairs master bedroom, Mr. Woodahl 

noted that the floor appeared to be out of level. using his 
level, Mr. Newman determined that the floor sloped toward 

the north at a rate of 5 1/2 inches over thirty feet. Other 

rooms also were determined to be out of level, most notably 

the downstairs television room. 

Out of court attempts to cure the problem to the satisfaction of both parties failed. On May 5, 1980, plaintiffs 

filed a complaint in the Eighth Judicial District alleging 

fraud; or, in the alternative, mistake on the part of defendant. 

They requested rescission of the contract; or, in the alternative, damages to be measured by the cost of restoring the 

house to a structurally sound and habitable state. Defendant 

filed an answer and counter-claim on May 20, 1980, requesting 

specific performance of the agreements. 

At trial, Carol Matthews testified that she and her 

family had resided in the house for ten years and that she 

had never noticed the floors were not level. She had noticed 

that two doors, the master bedroom door and the door to 

another upstairs bedroom, tended to automatically slam shut. 

She propped these doors open with a valet in the master 

bedroom and a toy in the other bedroom. These objects were 

in place each time the Woodahls toured the house. The 

automatic closing problem was attributed by Mrs. Matthews to 

either loose hinges or incorrect hanging of the doors. 

She testified that the problem had arisen after her husband 

oiled the hinges on the doors. 

The Matthews completed several remodeling projects and 

built two additions to the home during their residence. In 

1975 the garage beneath the master bedroom was converted to 

a den and a new garage constructed adjacent to the den. In 

1976 the kitchen was remodeled and a dinette constructed. 

Russ Jones was the construction superintendent for both 
projects. He testified at trial that he had not noticed any 

unlevel condition so out of the ordinary as to warrant being 

brought to the attention of Mrs. Matthews. 

Further testimony by Mr. Jones concluded that had the 

house settled 5 1/2 inches, cracks in the foundation of the 

house and breakage of pipes would have occurred. Mr. Jones 

noticed no cracks or breaks at the time the construction 

projects were performed. 

Mr. James Walsh, a salesman for contract flooring, 

performed an estimate for floor covering for the master 

bedroom of the house. He noticed no unlevel condition while 

performing his estimate and he was never informed by the 

carpet layer of any problem. 

Mr. James Greer, a carpenter, resided the house. He 

noticed nothing unusual. Mr. Vern Flesch, a painter and 

paperhanging contractor, applied striped wallpaper to the 

walls and ceiling of the upstairs bathroom. He noticed no 

particular unlevel condition within the bathroom which he 

considered exceptional. 

James Woodahl testified at trial that he had toured the 

house two times prior to the January 8, 1980, agreements. 

Mrs. Woodahl testified that she had accompanied her husband 

on those tours. Neither plaintiff noticed the floors to be 

out of level during the tours. The floor's unlevel condition 

was first noticed by James Woodahl on February 13, 1980. 

James Woodahl hired William Ferro to professionally 

appraise the house prior to the signing of the contract 

agreements. Mr. Ferro did not observe the unlevel condition 

when he appraised the home, nor did he discover any evidence 

of settlement. He appraised the home at $190,000. He 

estimated that the unlevel condition would reduce the value 

of the home by ten to fifteen percent. 
In its findings of fact, the District Court found that 

Mrs. atth thews was not aware of an unlevel condition in 

portions of the home when it was sold to the Woodahls." The 

court also found "that the unlevel condition in portions of 

the home was not observable by persons engaged in normal 

usage of the home, did not affect the habitability of the 

home and did not prevent the Woodahls from using the home 

for the purpose which they originally intended." Matthews 

was not found to be guilty of fraud or misrepresentation; 

mutual mistake between the two parties was not found to 

exist; and no material failure of consideration warranting a 

rescission of the agreement was found. 

Therefore, the court concluded, since the home was 

habitable despite the unlevel conditions, "Woodahls received 

the property for which they bargained." Finally, the court 

held Matthews not liable for damages as a result of the 

unlevel condition of the home and found Matthews entitled to 

specific performance of the agreements. 

On appealing the order for specific performance, Woodahls 

raised the following issues: 

(1) Whether the District Court abused its discretion 

in refusing to grant relief on the theory of express warranty. 

(2) Whether the District Court abused its discretion 

by failing to find that the defendant had knowledge of the 

defective condition of the home when she sold it to the 

plaintiffs. 

(3) Whether the ~istrict Court abused its discretion 

by failing to grant rescission of the contracts involved. 

(4) Whether the District Court abused its discretion 

in refusing to grant relief on the basis of constructive 

fraud or unjust enrichment. 
(5) Whether, having failed to grant rescission, the 

District Court abused its discretion by failing to award 

damages to the plaintiffs. 

We will discuss the issue of warranty, consolidate our 

discussion of the issues bearing on rescission and, because 

we affirm, the damage issue is moot. 

WHETHER THE DISTRICT COURT ABUSED ITS DISCRETION IN REFUSING 

TO GRANT RELIEF ON THE THEORY OF EXPRESS WARRANTY. 

Not only did the District Court refuse to grant relief 

on the theory of express warranty, it totally failed to 

address the issue in its findings of fact and conclusions of 

law. Upon reviewing the testimony concerning express warranties 

and applying relevant contract law to the facts as we found 

them, we agree that relief should not have been granted 

appellant on the theory of express warranty. 

In the listing for the house, Mrs. Matthews described 

the condition of her home as excellent. However, nowhere 

in their testimony is there an indication that either Mr. or 

Mrs. Woodahl relied on that listing statement when deciding 

whether or not to purchase the house. There can be no 

express warranty without reliance. Jones v. Armstrong 

(1915), 50 Mont. 168 at 175, 145 P. 949 at 951. 

Mr. and Mrs. Woodahl did state that on their second 

tour of the house, they asked Mrs. Matthews: "Are there any 

problems with this house?" Mrs. Matthews allegedly replied: 

"None whatsoever." Mr. Woodahl stated that he relied on 

this comment when deciding whether to purchase the house. 

Mrs. Matthews denied that conversation ever occurred. The 

trial court failed to make a finding of fact regarding the 

occurrence of this purported conversation. 

However, even if the court had found that the conversation did take place and that Mr. Woodahl did rely on Mrs. 

Matthews' response, relief should not have been granted on 
the theory of express warranty. A Real Property Purchase 

Agreement was signed by the parties on January 8, 1980, 

which contained the following clauses: 

"8. Conveyance of the real property and improvements to Purchaser shall be by general 

warranty deed. Acceptance of the deed by 

Purchaser shall be deemed to be, and constitute, full performance and discharge of every 

agreement and obligation set forth herein and 

no covenant of this agreement shall survive 

the closing except as specifically set forth 

herein. " 

and 

"12. This Agreement constitutes the sole and 

entire agreement between the parties and supersedes any and all prior written or oral representations, promises, covenants, understandings, or other agreements between the parties." 

Written contracts supersede all oral negotiations which 

preceded the signing of the contract. Section 28-2-904, 

MCA, states: 

"Effect of written contract on oral agreements. 

The execution of a contract in writing, whether 

the law requires it to be written or not, supersedes all the oral negotiations or stipulations 

concerning its matter which preceded or accompanied the execution of the instrument." 

Pursuant to this section, Woodahls' execution of the 

Real Property Purchase Agreement served to waive all other 

oral representations made by Matthews to the Woodahls. This 

would have included the comment "none whatsoever," had that 

comment been made by Matthews and relied upon by Woodahls. 

WHETHER THE DISTRICT COURT ABUSED ITS DISCRETION BY FAILING 

TO GRANT RESCISSION OF THE CONTRACTS INVOLVED. 

Section 28-2-1711, MCA, governs when a party may rescind 

a contract. Section 28-2-1711(1), MCA, allows rescission 

when "the consent of the party rescinding . . . was given 

by mistake or obtained through duress, menace, fraud, or 

undue influence . . ." Appellants in this case allege both 

mistake and fraud, specifically constructive fraud. 
Constructive fraud is defined in section 28-2-406, MCA, 

the relevant portion of which states: 

"Constructive fraud consists in: 

"(1) any breach of duty which, without an 

actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him by misleading another to his 

prejudice or to the prejudice of anyone 

claiming under him." 

This Court in Mends v. Dykstra (1981), Mont. I 

P. 2d , 38 St.Rep. 2010, extended the concept of 

constructive fraud to transactions such as a contract for 

the purchase of a house. Therefore, constructive fraud may 

be raised as an issue in this case; however, pursuant to the 

express terms of section 28-2-406(1), MCA, constructive 

fraud requires the breach of a duty. Therefore, a factual 

determination regarding the existence of a duty must be made 

prior to any finding of constructive fraud. 

The District Court determined that "Matthews was not 

aware of an unlevel condition in portions of the home when 

it was sold to the Woodahls . . ." Testimony by Mrs. Matthews 

and several contractors who performed work on the house 

substantiate this finding. In addition, appellants failed 

to notice the condition on two occasions and their professional 

appraiser testified to being unaware of the condition at the 

time he conducted the appraisal. 

The findings of fact and conclusions of law of the 

District Court "will not be disturbed if supported by substantial 

evidence and by the law." ~auterjwg v. Johnson (1977), 175 

Mont. 74 at 77, 572 P. 2d 511 at 512-513. We find there to 

be substantial credible evidence to support this finding of 
fact and therefore uphold the District Court's determination 

that Mrs. Matthews was unaware of the defective condition at 

the time she sold the house to the Woodahls. 

Since Mrs. Matthews was unaware of the defect, she was 

under no duty to disclose the defect to the Woodahls. This 

Court in Moschelle v. Hulse (1980), Mont . , 622 

P.2d 155, 37 %Rep. 1506, made it clear that knowledge of a 

defect is necessary before the duty to disclose the defect 

exists. Therefore, pursuant to section 28-2-406, MCA, Mrs. 

Matthews is not guilty of constructive fraud as she had no 

duty to breach. We affirm the District Court's conclusion 

that Mrs. Matthews was not guilty of constructive fraud. 

The District Court also determined that the Woodahls 

received that for which they had bargained. The trial court 

found : 

"Woodahls received the property for which they 

bargained. No condition of the home renders 

it uninhabitable or unfit for the purposes 

which they intended. Insofar as the purpose of 

the agreements was to furnish the Woodahls 

with a home to live in, that purpose was not 

frustrated by the unlevel condition of a portion of the home." 

This determination by the trial court is not contested 

on appeal by appellants. There is substantial credible 

evidence to support this conclusion as the Matthews resided 

in the home for ten years. Thus, the conclusion is accepted 

as stated. 

In order for a mutual mistake by the parties to a 

contract to warrant rescission of the contract, the mistake 

must be "so substantial and fundamental as to defeat the 

object of the parties in making the contract." Johnson v. 

Meiers (1946), 118 Mont. 258, 164 P.2d 1012. The trial 

court found no mutual mistake existed. However, even if a 
mutual mistake had been found, the mistake did not affect 

"the object of the parties in making the contract" and 

rescission on the basis of mutual mistake does not lie. 

Finally, as the court held that appellants' received 

the property for which they had bargained, there is no 

material failure of consideration. We affirm the District 

Court's decision not to rescind. 

WHETHER, HAVING FAILED TO GRANT RESCISSION, THE DISTRICT 

COURT ABUSED ITS DISCRETION BY FAILING TO AWARD DAMAGES TO 

THE PLAINTIFFS? 

We have previously upheld the District Court's determination 

that there was no basis for rescission. The same trial 

court's findings foreclose any claim upon which damages 

could be awarded. 

The trial court made an award of attorney fees to 

respondent. The appellant did not assign that award as 

error and did not mention the issue in its brief. The 

matter is first discussed in the reply brief which is limited 

to responding to arguments made in the answer brief. Therefore, 

we will not consider the issue on appeal. 

The judgment of the trial court is affirmed. 

We Concur: 

%+d4$, ~-~ 

Chief Justice