NO. 94-615

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

MICHAEL MIHALKA,

Plaintiff and Appellant,

-vBOYCE B. HILL and BETH HILL,

Defendants and Respondents.

APPEAL FROM: District Court of the Twenty-First Judicial District,

In and for the County of Ravalli,

The Honorable John W. Larson, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Judith A. Loring, Stevensville, Montana

For Respondent:

Edward A. Murphy, Datsopoulos, MacDonald & Lind,

Missoula, Montana
Justice James C. Nelson delivered the Opinion of the Court.

The plaintiff, Michael Mihalka (Mihalka), brought an action in

the District Court to rescind a Contract for Deed between Mihalka

and the defendants, Boyce and Beth Hill (the Hills). Following a

bench trial, the District Court for the Twenty-First Judicial

District, Ravalli County, concluded that Mihalka had not made an

effective offer of rescission and had breached the contract. The

court granted the Hills their costs of suit and reasonable attorney

fees. Mihalka appeals. We affirm.

We address only the following issue on appeal:

Did the District Court err by holding that Mihalka had not

made an effective offer of rescission?

Background

In 1978, the Hills purchased property in Ravalli County and

began construction of a house on the property the following year.

The house was built by the Hills and several of their friends and

relatives. The Hills worked on the house until 1986. They resided

in it during the warmer months of the year and spent the winter

months in Arizona.

The Hills listed the house for sale in 1988. On December 4,

1989, Mihalka viewed the house with a realtor and indicated an

interest in purchasing it. Mihalka executed a buy/sell agreement

on the house the following day. The agreed purchase price was

$50,000, with $500 to be paid as earnest money, $9,500 to be paid

at closing and $40,000 due on a contract for deed payable over 10

years.

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After executing the buy/sell agreement, but prior to closing,

Mihalka moved into the house and began remodeling. He testified at

trial that during his attempts to remodel, he discovered numerous

problems with the house, including problems with the electrical

system and water leakage. On January 17, 1990, Mihalka sent the

Hills a letter citing various problems with the property and

demanding his money back. However, in his letter, Mihalka did not

offer to restore the property to the condition it was in before he

started his remodeling work.

Mihalka failed to make his June 1990 payment. On June 13,

1990, the Hills sent Mihalka a letter advising him that he had

thirty days from the date of the letter to cure the default or the

agreement would be terminated and the Hills would re-enter and take

possession of the property.

Mihalka failed to cure the default and moved out of the house.

The Hills took possession of the property in July 1990. Testimony

at trial showed that Mihalka failed to restore various items he had

removed in his remodeling, including: the kitchen sink, a wood

stove, the bricks around the wood stove, a door, insulation around

the hot water heater and kitchen cupboards. In addition, Mihalka

had not restored electrical modifications he made, pipes he cut,

nor holes he put in the ceiling. On July 23, 1990, Mihalka's

attorney sent a letter of rescission to the Hills containing an

offer to restore the property.

Mihalka filed suit on March 13, 1991, to recover his down

payment of $10,000 along with his costs to insure the home,

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interest expense on his monthly payments, and attorney fees. The

Hills counterclaimed for damages and to get the escrow documents

from the escrow agent in order to remove Mihalka's name from the

title. The District Court found for the Hills and awarded them

their attorney fees and damages. Mihalka moved the court to alter

or amend that portion of the judgment awarding damages to the

Hills. The motion was granted and Mihalka now appeals from the

District Court's Amended Findings of Fact, Conclusions of Law and

Judgment.

Discussion

Did the District Court err by holding that Mihalka had not

made an effective offer of rescission?

The District Court concluded that Mihalka had breached the

contract by failing to make the June 1990 payment and that the

Hills had properly terminated the contract after Mihalka failed to

cure the default. The District Court determined that Mihalka "made

no effective offer of recision [sic] and even kept the keys to the

house through the date of trial in this matter (almost four

years) .I'

Our review of a district court's conclusions of law is

plenary. We simply determine whether the court's interpretation of

the law is correct. Steer, Inc. v. Department of Revenue (1990),

245 Mont. 470, 474-75, 803 P.2d 601, 603.

Section 28-z-1713, MCA, provides:

How rescission accomplished. Rescission, when not

effected by consent, can be accomplished only by the use

o n the part of the party rescinding of reasonable

diligence to comply with the following rules:

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(1) He must rescind promptly upon discovering the

facts which entitle him to rescind if he is free from

duress, menace, undue influence, or disability and is

aware of his right to rescind.

(2) He must restore to the other party everything of

value which he has received from him under the contract

or must offer to restore the same, upon condition that

such party shall do likewise, unless the latter is unable

or positively refuses to do so. [Emphasis added.1

The District Court determined that the Contract for Deed

contained a default clause which provided that the sellers can

terminate the contract due to default after giving the buyer thirty

days notice by certified mail. Upon termination, the sellers have

the right to keep all money paid as rent and liquidated damages and

to receive all documents held in escrow.

When Mihalka failed to make the June 1990 payment, the Hills

sent Mihalka a notice of default reciting the failure to make the

June payment along with other defaults. Mihalka failed to cure the

defaults and the Hills terminated the contract. It was not until

July 23rd, ten days after the deadline to cure the default had

passed, that Mihalka sent a letter of rescission containing an

offer to restore the property.

In order to effectively rescind, a party must act promptly

upon discovery of the facts supporting the rescission. Section 28-

Z-1713 (1) , MCA; Schweigert v. Fowler (1990), 240 Mont. 424, 431,

784 P.2d 405, 410. Mihalka did not attempt to rescind the contract

until after the contract had terminated due to Mihalka's default.

His attempt at rescission came too late.

1n addition, Mihalka failed to restore to the Hills everything

of value which Mihalka had received from the Hills under the

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contract. Section Z&2-1713(2), MCA. The objective of rescission

is to return the parties to the position they were in had the

contract never been made. Cady v. Burton (1993), 257 Mont. 529,

538, 851 P.2d 1047, 1053. Although, Mihalka offered in his July

23, 1990 letter, to restore the property, the offer came too late

as the contract had already been terminated.

Accordingly, we hold that the District Court correctly

interpreted the law as it applies in this case and we affirm the

District Court's determination that Mihalka did not effectively

rescind the Contract for Deed.

Affirmed.

Pursuant to Section I, Paragraph 3 cc), Montana Supreme Court

1988 Internal Operating Rules, this decision shall not be cited as

precedent and shall be published by its filing as a public document

with the Clerk of this Court and by a report of i result to the

West Publishing Company.

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