No. 81-303 INTHE 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

# -1982Mr. 

### 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 specificperformance of a contractbetween plaintiffs and defendant, Carolyn K. 

### Matthews. James Woodahl, an activereal estatedeveloper working primarily inGreat Falls and Billings, developed thePark Plaza residential condominiums inGreat Falls. Barbara Woodahl is James' wife. Carolyn Matthews was the owner of a house at1909 Eleventh StreetSouthwest, Great Falls, Montana. She had been a real estate salesperson for approximately sixmonths when she was approached by an agent of theWoodahls regarding the opportunity topurchase a Park Plaza Condominium. Negotiations commenced between the two parties inlate 1979. The negotiations resulted ina series of agreements being entered intoon January 8, 1980, whereby theWoodahls would leaseunits 7A and 4C 

### of Park Plaza toMatthews in exchange forMatthews sellingtheWoodahls her home. The lease for 7A contained an option topurchase the unit on February 1, 

### 1981. The optionwas tobe exercised by Matthews' forgiving the obligation of theWoodahls under their promissory note on the house. On February 13, 1980, theWoodahls, their interior decorator, Tom Matsko, and Richard Newman, a building contractor, entered the house togather information for remodeling purposes. While inthe upstairs master bedroom, Mr. 

### Woodahl noted that the floor appeared tobe out of level. using his

### level, Mr. 

### Newman determined that the floor sloped toward the north ata rate of 5 1/2 

### inches over thirty feet. Other

rooms also were determined tobe out of level, most notably the downstairs television room. Out of court attempts tocure the problem tothe satisfaction of both parties failed. On May 5, 1980, plaintiffs filed a complaint in the Eighth Judicial District

### alleging fraud; or, inthe alternative, mistake on the part of defendant. They requested rescission of the contract; or, in the alternative, damages tobe measured by the cost of restoring the house toa structurally sound and habitable state. Defendant filed an answer and counter-claim on May 20, 

### 1980, requesting specific performance of the agreements. At

### trial, CarolMatthews testified that she and her family had resided inthe house for ten years and that she had never noticed the floors were not level. She had noticed that two doors, themaster bedroom door and the door to another upstairs bedroom, tended toautomatically slam shut. She propped these doors open with 

### a valet inthemaster bedroom and a toy inthe other bedroom. These objects were inplace each 

### timetheWoodahls toured the house. The automatic closing problem was attributedby 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 tothe home during their residence. In 1975 the garage beneath themaster bedroom was converted to
a den and a new garage constructed adjacent tothe den. In 1976 the kitchen was remodeled and a dinette constructed. Russ Jones was the construction superintendent for both

### projects. He testified attrial that he had not noticed any unlevel condition so out of the ordinary as towarrant being brought tothe attentionof Mrs. 

### Matthews. Further testimony by Mr. 

### Jones concluded that had the house settled 5 

### 1/2 inches, cracks inthe foundation of the house and breakage of pipes would have occurred. Mr. 

### Jones noticed no cracks orbreaks atthe 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 conditionwhile 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 ceilingof the upstairs bathroom. He noticed no particular unlevel condition within the bathroom which he considered exceptional. James Woodahl testified attrial 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 tobe outof level during the tours. The floor's unlevel condition

was 

### firstnoticed by James Woodahl on February 13, 1980. James Woodahl hired 

### WilliamFerro toprofessionally 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 theunlevel conditionwould reduce the value of the home by ten tofifteenpercent.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 inportions of the home was not observable by persons engaged innormal usage of the home, did not affect the habitability of the home and did not prevent theWoodahls from using the home for the purpose which they originally intended." Matthews

was not found tobe 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 specificperformance, Woodahls raised the following issues: (1) Whether the DistrictCourt abused 

### its discretion inrefusing 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 failingtogrant rescission of the contracts involved. (4) Whether the DistrictCourt abused 

### its discretion inrefusing togrant relief on the basis of constructive fraud orunjust enrichment.(5) Whether, having failed togrant rescission, the District Court abused 

### its discretionby failing to award damages to the plaintiffs. We 

### willdiscuss the issue of warranty, consolidate our discussion of the issues bearing on rescission and, because

we affirm, the damage issue 

### ismoot. WHETHER THE DISTRICT COURT ABUSED ITS DISCRETION INREFUSING TO GRANT RELIEF ON THE THEORY OF EXPRESS WARRANTY. Not only did the District Court refuse togrant 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 aswe 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 intheir testimony 

### is there an indication that either Mr. or Mrs. Woodahl relied on that listing statement when deciding whether or not topurchase the house. There can be no express warranty without reliance. Jones v. Armstrong (1915), 50 Mont. 168 at175, 145 P. 949 at951. Mr. and Mrs. Woodahl did statethat 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 topurchase the house. Mrs. Matthews denied that conversation ever occurred. The trialcourt failed tomake a finding of factregarding the

occurrence of thispurported conversation. However, even if the court had found that the conversation did take place and thatMr. 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 theparties on January 8, 1980, which contained the following clauses: "8. Conveyance of the 

### real property and 

### improvements toPurchaser shallbe by general warranty deed. Acceptance of the deed by Purchaser shallbe deemed tobe, and constitute, fullperformance and dischargeof every agreement and obligation 

### set forthherein and no covenant of this agreement shall survive the closing except as specifically setforth herein.

### " and "12. This Agreement constitutes the sole and entire agreement between the parties and supersedes any and allprior written or oral representations, promises, covenants, understandings, or other agreements between the parties." Written contracts supersede alloral 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 inwriting, whether the 

### lawrequires it tobe written or not, supersedes allthe oralnegotiations or stipulations concerning itsmatter which preceded or accompanied the execution of the instrument." Pursuant to this section, Woodahls' execution of the Real Property Purchase Agreement served towaive allother oral representations made by Matthews to theWoodahls. 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 partymay rescind

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

### allows rescission when "theconsent of the party rescinding 

# . . .was given by 

### mistake or obtained through duress, menace, fraud, or undue influence

# .

# . ." Appellants in this case allegeboth 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 totheperson in fault or anyone claiming under him by misleading another tohis prejudice or to the prejudice of anyone claiming under him." This Court inMends v. Dykstra (1981), Mont. I P.2d 

## , 38 St.Rep. 2010, extended the concept of constructive fraud totransactions such as 

### a contract for the purchase 

### of a house. Therefore, constructive fraudmay be raised as an issue inthis case; however, pursuant tothe 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 DistrictCourt determined that "Matthews 

### was not

aware of an unlevel condition inportions of the home when 

### it was sold to theWoodahls 

# . . ." Testimony by Mrs. Matthews and several contractors who performed work on the house substantiate this finding. In addition, appellants failed tonotice the condition on two occasions and their professional appraiser testified tobeing unaware of the condition atthe 

### timehe conducted the appraisal. The findings of fact and conclusions of law of the DistrictCourt "will not be disturbed if supported by substantial evidence and by the law." ~auterjwg v. Johnson (1977), 175 Mont. 74 at77, 572 P.2d 511 at512-513. Wefind there to be substantial credibleevidence to support this finding offactand therefore uphold the 

### District Court's determination thatMrs. Matthews was unaware of the defective condition at the 

### time she sold the house totheWoodahls. Since Mrs. Matthews was unaware of the defect, she was under no duty todisclose the defect totheWoodahls. This Court inMoschelle v. Hulse (1980), Mont

# . , 622 P.2d 155, 37 %Rep. 1506, made 

### it clear that knowledge of a defect 

### is necessary before the duty todisclose the defect exists. Therefore, pursuant to section 28-2-406, 

### MCA, Mrs. Matthews 

### is not guilty of constructive fraud as she had no duty tobreach. Weaffirm the DistrictCourt's conclusion thatMrs. Matthews was not guilty of constructive fraud. The DistrictCourt alsodetermined that theWoodahls received that forwhich they had bargained. The trialcourt found: "Woodahls received the property forwhich they bargained. No condition of the home renders 

### it uninhabitable orunfit for the purposes which they intended. Insofar as thepurpose of theagreements was to furnish theWoodahls with a home to livein, thatpurpose 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 theMatthews resided inthe home for tenyears. Thus, the conclusion 

### is accepted

as stated. In order for a mutual mistake by the parties to a contract towarrant rescission of the contract, themistake must be "so substantial and fundamental as to defeat the object of theparties inmaking the contract." Johnson v. 

### Meiers (1946), 118Mont. 258, 164 P.2d 1012. The trial court found no mutual mistake existed. However, even if amutual mistake had been found, the mistake did not affect "the object of theparties inmaking the contract" and rescission on thebasis of mutual mistake does not 

### lie. Finally, 

### as the court held that appellants' received theproperty forwhich they had bargained, there 

### is no material failureof consideration. Weaffirm the District Court's decision not torescind. WHETHER, HAVING FAILED TO GRANT RESCISSION, THE DISTRICT COURT ABUSED ITS DISCRETION BY FAILING TO AWARD DAMAGES TO THE PLAINTIFFS? Wehave previously upheld the 

### DistrictCourt'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 firstdiscussed inthe reply brief which 

### is limited toresponding toarguments made in the answer brief. Therefore,



### wewillnot consider the issue on appeal. The judgment of the trialcourt 

### is affirmed.

WeConcur: %+d4$, 

## ~-~ Chief Justice