NO. 94-070

IN THE SUPREME COURT OF THE STATE OF MONTANA

1994

GOODMAN REALTY, INC., a Montana

corporation, GERRY L. SMITH and

KATHY A. SMITH, husband and wife,

Plaintiffs and Appellants,

v. OCT 22 19%

LAURA M. MONSON,

Defendant and Respondent.

APPEAL FROM: District Court of the Eleventh Judicial District,

In and for the County of Flathead,

The Honorable Ted 0. Lympus, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Stephen C. Berg, Warden, Christiansen,

Johnson & Berg, Kalispell, Montana

For Respondent:

William E. Astle, Astle & Astle,

Kalispell, Montana

Filed:

Submitted on Briefs: September 22, 1994

Decided: October 27, 1994'
Justice William E. Hunt, Sr., delivered the opinion of the Court.

Goodman Realty, Inc., and Gerry and Kathy Smith jointly filed

a complaint in the District Court for the Eleventh Judicial

District in Flathead County requesting that Laura Monson execute a

document clarifying the Smiths' rights regarding a drainfield on

Monson's property which services the Smiths' property.

Alternatively, if Monson refused to execute the requested document,

plaintiffs sought a decree adjudging the location of the drainfield

on the Monson property and declaring the existence of an easement

for use of the drainfield appurtenant to the Smiths' property.

Pursuant to Mont. R. Civ. P. 12(b), Monson filed separate motions

to dismiss as to Goodman Realty and the Smiths. After considering

the briefs of parties, the District Court dismissed with prejudice

the claims of both Goodman Realty and the Smiths and entered

orders. Goodman Realty and the Smiths appeal from those orders.

We affirm the District Court.

The parties raise the following issues on appeal:

1 . Does the complaint set forth sufficient facts to support

a claim for reformation of a written instrument?

2 . Did the Smiths acquiesce in the warranty deed?

3 . Does Goodman Realty's pecuniary interest in the outcome

of the Smiths' claim against Monson create a basis upon which

Goodman Realty may bring a claim against Monson?

Because this appeal arose from the District Court's granting

of a motion to dismiss, the record in this case consists of the

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complaint and the exhibits attached to it, which set forth the

following facts:

Prior to April 1986, Jean Peterson owned an undivided parcel

of land in Flathead County. In April 1986, Peterson divided the

parcel into two separate tracts, Flathead County Assessor's Tract

4D and Tract 4DA. Tract 4D lies immediately east of Tract 4DA and

adjoins the easterly property line of Tract 4DA.

In November 1988, Peterson's successor in interest, Beneficial

Montana, Inc., doing business as Beneficial Mortgage Co.

(Beneficial), conveyed Tract 4DA to Laura Monson. At the time of

the conveyance to Monson, a drainfield servicing Tract 4D

physically existed on Tract 4DA. The location of the drainfield is

depicted on Flathead County Certificate of Survey No. 8549, dated

April 21, 1986. The certificate of survey indicates that a

"drainfield easement appurtenant to Tract 4D" existed on Tract 4DA.

However, the deed of conveyance from Beneficial to Monson merely

refers to the certificate of survey and fails to specifically

describe any easement over Tract 4DA.

On May 13, :L993, the Smiths purchased Tract 4D by warranty

deed from Paul and Phyllis Jenkins. Goodman Realty facilitated the

Smiths' purchase. Prior to the sale, Goodman Realty and the Smiths

agreed that Goodman Realty would post a $10,000 indemnity sum with

Citizen's Title and Escrow Company to indemnify the Smiths in the

event that Tract 4DA was not subject to a drainfield easement for

the benefit of Tract 4D.
In reviewing a motion to dismiss, we construe the complaint in

the light most favorable to the plaintiffs and take the allegations

of the complaint as true. King v. State (1993), 259 Mont. 393,

395-96, 856 P.2d 954, 955 (citing Willson v. Taylor (1981), 194

Mont. 123, 126, 634 P.2d 1180, 1182).

When a case is dismissed pursuant to a pretrial motion

and the credibility of witnesses is not an issue, the

scope of review is broad and this Court may make its own

examination of the entire case and make a determination

in accordance with its findings.

Kinq, 856 P.2d at 955. The dismissal will be affirmed only if this

Court finds that the plaintiffs are not entitled to relief under

any set of facts which could be proved in support of the claim.

w, 856 P.2d at 955 (citing Proto v. Missoula County (1988), 230

Mont. 351, 352-53, 749 P.2d 1094, 1095-96).

ISSUE 1

Does the complaint set forth sufficient facts to support a

claim for reformation of a written instrument?

The warranty deed conveying Tract 4D from the Jenkinses to the

Smiths contains the following description:

SUDJECT TO Drainfield easement over insured property

[Tract 4D] for the benefit of Assessors Tract No. 4DA, as

disclosed by document recorded July 21, 1988 as Dot. No.

88-203-08470, records of Flathead County, Montana.

The Smiths claim that the described easement is backwards, and that

in fact a drainfield easement runs over Tract 4DA for the benefit

of Tract 4D. To rectify the alleged error, the Smiths seek the

equitable remedy of reformation.

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The mistake of the scrivener or draftsperson who prepared the

instrument alone is insufficient grounds for reformation.

66 Am. Jur. 2d ReformationOfInSttwnents $j 12 (1973). The proper grounds

for reformation are set forth in § 28-2-1611, MCA:

When written contract may be revised by court. When,

through fraud or a mutual mistake of the parties or a

mistake of one party while the other at the time knew or

suspected, a written contract does not truly express the

intention of the parties, it may be revised on the

application of a party aggrieved so as to express that

intention, so far as it can be done without prejudice to

rights acquired by third persons in good faith and for

value.

Absent a satisfactory showing of fraud, mutual mistake, or

unilateral mistak:e, there is no basis for a court in equity to

reform a written instrument. Plaintiffs do not allege fraud in the

instant case. Therefore, we address only the issues of mutual and

unilateral mistake.

Reformation of a written instrument for mutual mistake

presupposes a prior complete and mutual understanding between the

parties to the instrument. McSweyn v. Musselshell County (1981),

193 Mont. 525, 531, 632 P.2d 1095, 1098. Such a meeting of the

minds is necessary because it serves as the standard from which the

instrument may be reformed. Sullivan v. Marsh (1950), 124 Mont.

415, 422, 225 P.2d 868, 872. Mutual mistake, however, is not

applicable where the plaintiff knew of the mistake. Schillinger v.

Huber (1958), 133 Mont. 80, 85, 320 P.2d 346, 348.

Likewise, a plaintiff who knows of the mistake prior to

executing the written instrument cannot sustain a claim for

reformation based on unilateral mistake. Schillinser, 320 P.2d at

5
348. In Story v. City of Bozeman (1993), 259 Mont. 207, 223, 856

P.2d 202, 212, this Court explained that § 28-2-1611, MCA,

specifies unilateral mistake as "the mistake of one party while the

other at the time knew or suspected." Additionally,

[i]n interpreting 5 17-901, R.C.M. (1947), (the identical

predecessor to 5 28-2-1611, MCA), we stated that the

right to reform a contract for unilateral mistake does

not lie for the party who knew of the mistake in the

contract; rather, it belongs to the aggrieved party who

is laboring under a mistake known or suspected by the

other party.

Story, 856 P.2d at 212 (citing Schillinser, 320 P.2d at 348). In

Storv, the City of Bozeman asserted that a typographical error in

its contract with Mark Story Construction provided a sufficient

basis for its reformation claim. Instead of listing the unit of

measurement for the necessary materials in I'CY" (cubic yards), the

contract erroneously listed the unit of measurement in "CF" (cubic

feet). Prior to executing the contract, however, the City of

Bozeman had actual knowledge of the typographical error and failed

to remedy it. We held that

[a]s such, tlhe City cannot claim that it was laboring

under a mistake that the contract read "CY." Pursuant to

Schillinger, the party who knows of the mistake cannot seek

to reform the contract based on unilateral mistake.

Storv, 320 P.2d at 212.

The pertinent portions of the complaint in the instant case

allege as follows:

VI

Through drafting errors, instruments of records

subsequent to April, 1986 erroneously described the

drainfield easement as being located on the Smith

property (Assessor Tract 4D) for the benefit of the

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Monson property (Assessor Tract 4DA) rather than on the

Monson property, where the drainfield is actually

located, for the benefit of the Smith property. The deed

by which Smith took title, Exhibit A hereto, werwetuates

this error . . . .

VII

As reflected on Exhibit A [Jenkins-Smith warranty deed]

hereto, Smith purchased the Smith property by warranty

deed dated May 13, 1993. Prior to doing so, Smith

understood the location of the drainfield serving the

Smith property to be on the Monson property and that the

Monson property was subject to an easement for that

purpose, which easement was appurtenant to the Smith

property. smith further understood that such belief was

not supported bv various instruments of record includinq

the deed by which Smith acquired title . . . .

(Emphasis added).

The complaint clearly demonstrates that the Smiths had actual

knowledge of the location and operation of the drainfield on Tract

4DA. Furthermore, the complaint clearly demonstrates that before

purchasing Tract 4D the Smiths had actual knowledge that the

warranty deed described the alleged easement contrary to their

understanding. Therefore, we conclude that the Smiths failed to

set forth sufficient facts to support a claim for reformation.

ISSUE 2

Did the Smiths acquiesce in the warranty deed?

This Court reaffirms the longstanding rule of law that a

person who is not acting under mistake or fraud and who acquiesces

in an error loses his right to object to the error. Schillinqer,

320 P.2d at 349; 5 l-3-207, MCA. In Schillinqer, buyer and sellers

entered into a land sale contract in which the sellers reserved

6-l/4 percent of the oil and gas rights and royalties on the land

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to be conveyed to buyer. Buyer and sellers later met to transfer

title by deed: however, no one present had a copy of the land sale

contract. Sellers stated to the scrivener preparing the deed that

they reserved all but 6-l/4 percent (or 93-3/4 percent) of the oil

and gas rights and royalties. Buyer testified that he knew at that

time that the terms of the deed varied from the land sale contract.

Despite his knowledge of the variance, buyer testified that he

voluntarily accepted and executed the deed and paid the balance of

the purchase price. Seven years later, buyer found a copy of the

land sale contract and brought suit to reform the deed after

sellers refused to correct it. This Court held that, because the

buyer accepted the deed with knowledge of the mistake, the right of

reformation was destroyed. Schillinser, 320 P.2d at 347, 350.

In the instant case, the District Court concluded that the

Smiths are not entitled to reformation because they received the

deed to Tract 4D with actual knowledge that, although the

drainfield was physically located on Tract 4DA, the alleged

easement for use of the drainfield was erroneously recorded against

Tract 4D. We agree.

In their brief on appeal, the Smiths argue that

[w]hen Monson refused to execute a document clarifying

who had an easement on whose property [I, the Smiths had

to make a decision. The question was whether to go

forward, purchase the property from Jenkins and resolve

the easement matter later with Monson or the District

Court, or refuse to purchase the property. They chose

the former alternative . . . .

The Smiths, therefore, voluntarily accepted the warranty deed from

the Jenkinses, knowing that its terms expressly failed to conform

8
with their understanding of their rights. We conclude that, in

doing so, the Smiths acquiesced in the warranty deed as executed.

The Smiths argue that the brief length of time between the

execution of the deed from the Jenkinses and the filing of the

complaint in this case is relevant to show that they did not

acquiesce in the warranty deed. However, the length of time

between notice of the mistake and application for redress is

relevant only to implied acquiescence. Schillinser, 320 P.2d at

349-50. The Smiths' acquiescence here is direct, not implied.

Like the plaintiff in Schillinqer, the Smiths knew of the mistake

at the time of delivery of the deed, yet voluntarily executed the

agreement despite that knowledge. The Smiths' reasons for doing so

are not relevant. This Court, in Schillinaer, stated:

Regardless of [the purchaser's] reasons for doing so, by

paying the balance of the purchase price after he knew of

the mistake in the deed, and when he was not acting under

fraud he can only be held to have acquiesced in the

mistake.

Schillinuer, 320 P.2d at 350.

We hold that the Smiths acquiesced in the warranty deed.

ISSUE 3

Does Goodman Realty's pecuniary interest in the outcome of the

Smiths' claim against Monson create a basis upon which Goodman

Realty may bring a claim against Monson?

Plaintiff Goodman Realty placed its $10,000 real estate

commission for the sale of Tract 4D in escrow to indemnify the

Smiths in the event that a drainfield easement over Tract 4DA for

the benefit of Tract 4D did not exist. Because the release of the

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$10,000 depends on the resolution of the dispute between the Smiths

and Monson, Goodman Realty argues that its pecuniary interest in

the outcome is sufficient to create a cause of action between

Goodman Realty and Monson. Goodman Realty argues that

[i]n an action to reform a deed, all parties claiming an

interest to the land or any part thereof purportedly

conveyed by the instrument sought to be reformed, and

whose interests will be affected by the reformation of

the instrument, are necessary parties to the action.

66 Am. Jur. 2d Rgfonnation of Insfnments 5 100 (1973). While this may

be a correct statement of the law, Goodman Realty alleges no

interest in the property of either the Smiths or Monson. Its only

interest is in the $10,000 indemnification sum which is wholly

unrelated to the property interests at issue. Further, the

complaint does not allege that Monson breached any duty owed to

Goodman Realty. 1:n fact, Goodman Realty admits that Monson owes it

no legal duty. Goodman Realty clearly does not state a cause of

action against Monson, and the District Court correctly dismissed

its claim.

We affirm the orders of the District Court dismissing with

prejudice the claims of the Smiths and Goodman Realty.

Affirmed.

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We concur:

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October 27, 1994

CERTIFICATE OF SERVICE

I hereby certify that the following certified order was sent by United States mail, prepaid, to the

following named:

Stephen C. Berg

WARDEN, CHRISTIANSEN, JOHNSON & BERG

P. 0. Box 3038

Kalispell, MT 59903-3038

William E. Astle

ASTLE & ASTLE

705 Main Street

Kalispell, MT 59901

ED SMITH

CLERK OF THE SUPREME COURT