No. 90-005 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

RUSSELL E. VAN HOOK, JR. and JANICE L. VAN HOOK, 

Plaintiffs and Appellants, 

-vsCALVIN A. BAUM and WILMA J. BAUM, 

Defendants and Respondents. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis and Clark, 

The Honorable Henry Loble, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

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James P. Reynolds, Reynolds, Mot1 & Sherwood, 

LC 3 Helena, Montana 

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~j3 ;hLJ For Respondent: 1 L": fZ I /I, 

UCZ. .- Dennis Loveless, Helena, Montana 

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Submitted: July 20, 1990 

Decided: October 15, 1990 

Clerk 
Justice John C. Sheehy, delivered the Opinion of the Court. 

Russell and Janice Van Hook appeal from the determination of 

the ~istrict Court, First Judicial ~istrict, ~ewis and Clark 

County, denying appellants1 claims for contract rescission or 

damages. We affirm the District Court. 

The issues presented by the appellants are: 

1. Did the District Court err in concluding no mutual mistake 

of fact existed warranting rescission of the contract for the 

purchase of the real property? 

2. Did the District Court err in concluding respondents 

committed no fraud, actual or constructive in the sale of the real 

property? 

3. Did the District Court err in concluding no failure of 

consideration existed in the contract between the parties? 

The real property involved in this case is the house and 

property located at Lots 8, 9 and 10 in Block 26 of the Corbin 

Addition, known as 1523 Broadway, Helena, Montana. 

In the summer of 1981, Baums constructed a house upon the 

property, acting as the contractors and hiring various 

subcontractors. Baums built the home intending to reside there, 

but decided to sell when it became medically necessary for Mrs. 

Baum to move to a warmer climate. 

The house was constructed upon a special foundation due to the 

fill on the property and water which tended to collect there. 

Baums foresaw no problem with continuing water collection upon 

completion. 

2 
Van Hooks executed an earnest money receipt and an agreement 

to purchase on December 5, 1981, and on December 30, 1981, executed 

a $41,500 note secured by a trust indenture. Van Hooks also signed 

a promissory note to the Baums for $15,400, also secured by trust 

indenture, payable no later than December 30, 1983, or upon the 

sale of the real property. Van Hooks have not paid on the note, 

and admit to be in default thereon. 

The real property flooded on June 28, 1982, following an 

uncommonly large rainstorm. The property flooded again on August 

21, 1983, following a similar storm. Robert ~eccia, a private 

consulting engineer and hydrologist, using National Oceanic and 

~tmospheric ~dministration records for those dates, testified that 

both storms were of such extraordinary nature as to be expected to 

occur once every 100 years. 

In January of 1983, Van Hooks wrote a letter to the Baums 

seeking rescission of the contract. Baums refused. Van Hooks 

initiated suit in June of 1984, seeking rescission, or in the 

alternative, damages for breach of contract. The complaint also 

named the City of Helena. The City later paid $10,000 to the Van 

Hooks as settlement, and reconstructed the storm sewer on the 

property. The Baums counterclaimed, seeking enforcement of the 

contract. Bench trial was held from July 11 through July 14, 1988. 

The District Court, in its order of April 5, 1989, denied all 

claims of the Van Hooks, and granted leave to the Baums to proceed 

against the real property pursuant to the terms of the trust 
indenture. The Van Hooks made a motion to amend, which was denied. 

This appeal ensued. 

Van Hooks first contend that a mutual mistake of fact occurred 

in that neither of the parties knew of the potential flooding 

problem, and that rescission is the proper remedy. 

Mistake of fact is Itan unconscious ignorance or forgetfulness 

of a fact, past or present, material to the contract . . . 11 

Section 28-2-409, MCA. 

Section 28-2-1711 states in part: 

A party to a contract may rescind the same in the 

following cases only: (1) if the consent of the party 

rescinding . . . was given by mistake or obtained through 

duress, menace, fraud, or undue influence . . . It is a well-established rule in Montana that in order for 

mutual mistake by the parties to a contract to warrant rescission, 

the mistake must be so substantial and fundamental as to defeat the 

object of the contract. Halcro v. Moon (1987), 226 Mont. 121, 733 

P.2d 1305; Woodahl v. Matthews (1981), 196 Mont. 445, 639 P.2d 

1165; Johnson v. Meiers (1946), 118 Mont. 258, 164 P.2d 1012. 

Here, Van Hooks maintain that the flooding of the property is a 

problem so substantial as to defeat the object of the contract. 

However, the evidence does not bear this out. As the District 

Court stated, it is not a mistake of fact that several intense and 

unusual storms occurred. They were I1acts of God,I1 completely 

unanticipated, which caused damage to many other homes in the 

surrounding area. It should also be noted that corrective measures 

were taken by the City of Helena on the storm drain near the 
property in 1986 and that no flooding had occurred up to the time 

of trial. 

Van Hooks still reside in the house. This suit was brought 

in apprehension of further flooding. While no one may deny that 

the flooding was a problem, it cannot be said to be a mistake 

serving to defeat the object of the parties in making the contract, 

any more than would an earthquake or tornado or other natural 

phenomenon. 

Van Hooks next contend that Baums committed fraud or, 

alternatively, constructive fraud in the sale of the real property. 

Specifically, Van Hooks contend that Baums knew of the 

flooding potential and misled Van Hooks by asserting otherwise. 

The evidence does not show that such misrepresentations were made, 

or Van Hookst reliance thereupon. The District Court stated: 

The Van Hooks and the Baums had equal knowledge of the 

property as far as flooding potential was concerned. 

Neither had knowledge that was superior to the other. 

The Van Hooks conducted an independent investigation of 

potential water problems including, but not limited to, 

potential flooding of the property. The investigation 

included discussing potential water flooding problems 

with other individuals who had knowledge of past 

problems, and discussing potential water flooding 

problems with personnel from the City of Helena. The Van 

Hooks knew water had caused some problems in the past, 

and had been so informed by neutral, disinterested third 

parties. The Van Hooks relied upon their own independent 

investigation of the property, including investigations 

regarding potential flooding and water problems, when 

they decided to purchase the real property. They did not 

rely upon any representations made by the Baums regarding 

water problems. 
As noted by the lower court, a cause of action for fraud fails 

when the alleged misrepresentation is not relied upon. Lowe v. 

Root (1975), 166 Mont. 150, 531 P.2d 674. The District Court was 

in the best position to determine that Van Hooks did not rely on 

any alleged misrepresentation. We find no error in the lower 

court's holding of an absence of fraud. 

As to constructive fraud, no evidence was introduced showing 

Baums were aware of flooding potential of the home upon its 

construction. Baums originally built the home for their personal 

use, and decided instead to sell it only after Mrs. Baum developed 

health problems requiring her to move to a warmer climate. As the 

District Court noted, it cannot be reasonably contended that a 

person would build a house where he believed it would be flooded. 

The District Court's finding that the Baums were unaware of any 

defect, and thereby under no duty to disclose the defect, thus 

precluding constructive fraud claims, is supported by substantial 

evidence and will not be disturbed by this Court. Woodahl v. 

Matthews (1981), 196 Mont. 445, 639 P.2d 1165; Moschelle v. Hulse 

(1980), 190 Mont. 532, 622 P.2d 155. 

Van Hooks contend that they are entitled to rescind due to a 

partial or complete failure of consideration. They state that the 

lower court erred in concluding the house was worth intrinsically 

as much at the time of trial as when originally purchased. 

Section 28-2-1711, MCA, outlines the rights of parties wishing 

to rescind under a theory of failure of consideration: 
A party to a contract may rescind the same in the 

following cases only: 

(2) if, through the fault of the party as to whom he 

rescinds, the consideration for his obligation fails in 

whole or in part; 

(3) if such consideration becomes entirely void from any 

cause ; 

(4) if such consideration, before it is rendered to him, 

fails in a material respect from any cause . . . Subsections (2) and (4) are inapplicable here. Subsection (2) 

is premised upon the fault of the non-rescinding party, and the 

lower court specifically found the Baums to be free from fault. 

Nor does subsection (4) apply, as consideration was rendered. Van 

Hooks must rely on subsection (3) for relief. The subsection 

states that the party may rescind if consideration becomes entirely 

void. Clearly, that is not the case here. Van Hooks purchased the 

home in 1981 for $64,900. Although appraisals varied, Van Hooks 

stated that the house was worth approximately $62,000 in 1988. As 

the District Court noted, the lessened appraised values were all 

made in apprehension that the property might flood again. Clearly, 

the District Courtvs determination that there was not an adequate 

failure of consideration under 5 28-2-1711(3) was based on the 

evidence and law. We find substantial evidence supports the 

judgment. Corscadden v. Kenney (1977), 175 Mont. 98, 572 P.2d 

1234; Strong v. Williams (1969), 154 Mont. 65, 460 P.2d 90. 
We Concur: 

#FZ&~ Justices