Title: WOODAHL v MATTHEWS
Citation: N/A
Docket Number: 81-303
State: Montana
Issuer: Montana Supreme Court
Date: February 3, 1982

No. 81-303 I N THE S U P R E M E COURT O F THE STATE O F MONTANA 1981 JAMES A. WOODAHL and BARBARA A. WOODAHL, husband and wife, P l a i n t i f f s and Appellants, V S . C A R O L Y N K. M A T T H E W S , Defendant and Respondent. Appeal from: D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , I n and f o r t h e County of Cascade Honorable John McCarvel, Judge presiding. Counsel of Record: For Appellants: Smith, B a i l l i e & Walsh, Great F a l l s , Montana For Respondent: S c o t t , L i n n e l l & Newhall, Great F a l l s , Montana Submitted on b r i e f s : November 5 , 1981 Decided: February 3, 1982 Filed: FE0 3 - 1982 M r . J u s t i c e Frank B. Morrison, Jr., d e l i v e r e d t h e Opinion of t h e Court. P l a i n t i f f s , James and Barbara Woodahl appeal a f i n a l judgment entered by t h e D i s t r i c t Court of t h e Eighth J u d i c i a l ~ i s t r i c t denying t h e i r claim f o r r e s c i s s i o n and ordering t h e s p e c i f i c performance of a c o n t r a c t between p l a i n t i f f s and defendant, Carolyn K. Matthews. James Woodahl, an a c t i v e r e a l e s t a t e developer working primarily i n Great F a l l s and B i l l i n g s , developed t h e Park Plaza r e s i d e n t i a l condominiums i n Great F a l l s . Barbara Woodahl i s James' wife. Carolyn Matthews was t h e owner of a house a t 1909 Eleventh S t r e e t Southwest, Great F a l l s , Montana. She had been a r e a l e s t a t e s a l e s person f o r approximately s i x months when she was approached by an agent of t h e Woodahls regarding t h e opportunity t o purchase a Park Plaza Condominium. Negotiations commenced between t h e two p a r t i e s i n l a t e 1979. The negotiations r e s u l t e d i n a s e r i e s of agreements being entered i n t o on January 8, 1980, whereby t h e Woodahls would l e a s e u n i t s 7 A and 4C of Park Plaza t o Matthews i n exchange f o r Matthews s e l l i n g t h e Woodahls her home. The l e a s e f o r 7 A contained an option t o purchase t h e u n i t on February 1, 1981. The option was t o be exercised by Matthews' forgiving t h e o b l i g a t i o n of t h e Woodahls under t h e i r promissory note on t h e house. On February 13, 1980, t h e Woodahls, t h e i r i n t e r i o r decorator, T o m Matsko, and Richard Newman, a building c o n t r a c t o r , entered t h e house t o gather information f o r remodeling purposes. While i n t h e u p s t a i r s master bedroom, M r . Woodahl noted t h a t t h e f l o o r appeared t o be o u t of l e v e l . using h i s l e v e l , M r . Newman determined t h a t t h e f l o o r sloped toward t h e north a t a r a t e of 5 1 / 2 inches over t h i r t y f e e t . Other rooms a l s o were determined t o be o u t of l e v e l , most notably t h e downstairs t e l e v i s i o n room. Out of c o u r t attempts t o cure t h e problem t o t h e s a t i s - f a c t i o n of both p a r t i e s f a i l e d . O n May 5, 1980, p l a i n t i f f s f i l e d a complaint i n t h e Eighth J u d i c i a l D i s t r i c t a l l e g i n g fraud; o r , i n t h e a l t e r n a t i v e , mistake on t h e p a r t of defendant. They requested r e s c i s s i o n of t h e c o n t r a c t ; o r , i n t h e a l t e r - n a t i v e , damages t o be measured by t h e c o s t of r e s t o r i n g t h e house t o a s t r u c t u r a l l y sound and h a b i t a b l e s t a t e . Defendant f i l e d an answer and counter-claim on May 20, 1980, requesting s p e c i f i c performance of t h e agreements. A t t r i a l , Carol Matthews t e s t i f i e d t h a t she and her family had resided i n t h e house f o r t e n years and t h a t she had never noticed t h e f l o o r s were not l e v e l . She had noticed t h a t two doors, t h e master bedroom door and t h e door t o another u p s t a i r s bedroom, tended t o automatically slam s h u t . She propped t h e s e doors open with a v a l e t i n t h e master bedroom and a toy i n t h e o t h e r bedroom. These o b j e c t s were i n p l a c e each t i m e t h e Woodahls toured t h e house. The automatic c l o s i n g problem was a t t r i b u t e d by M r s . Matthews t o e i t h e r loose hinges o r i n c o r r e c t hanging of t h e doors. She t e s t i f i e d t h a t t h e problem had a r i s e n a f t e r her husband o i l e d t h e hinges on t h e doors. The Matthews completed s e v e r a l remodeling p r o j e c t s and b u i l t two a d d i t i o n s t o t h e home during t h e i r residence. I n 1975 t h e garage beneath t h e master bedroom was converted t o a den and a new garage constructed a d j a c e n t t o t h e den. I n 1976 t h e kitchen was remodeled and a d i n e t t e constructed. Russ Jones was t h e construction superintendent f o r both p r o j e c t s . He t e s t i f i e d a t t r i a l t h a t he had not noticed any unlevel condition s o o u t of t h e ordinary a s t o warrant being brought t o t h e a t t e n t i o n of M r s . Matthews. Further testimony by M r . Jones concluded t h a t had t h e house s e t t l e d 5 1/2 inches, cracks i n t h e foundation of t h e house and breakage of pipes would have occurred. M r . Jones noticed no cracks o r breaks a t t h e time t h e construction p r o j e c t s were performed. M r . James Walsh, a salesman f o r c o n t r a c t f l o o r i n g , performed an estimate f o r f l o o r covering f o r t h e master bedroom of t h e house. H e noticed no unlevel condition while performing h i s estimate and he was never informed by t h e c a r p e t l a y e r of any problem. M r . James Greer, a c a r p e n t e r , resided t h e house. H e noticed nothing unusual. M r . Vern Flesch, a p a i n t e r and paperhanging c o n t r a c t o r , applied s t r i p e d wallpaper t o t h e w a l l s and c e i l i n g of t h e u p s t a i r s bathroom. He noticed no p a r t i c u l a r unlevel condition within t h e bathroom which he considered exceptional. James Woodahl t e s t i f i e d a t t r i a l t h a t he had toured t h e house two times p r i o r t o t h e January 8, 1980, agreements. M r s . Woodahl t e s t i f i e d t h a t she had accompanied her husband on those t o u r s . Neither p l a i n t i f f noticed t h e f l o o r s t o be o u t of l e v e l during t h e t o u r s . The f l o o r ' s unlevel condition w a s f i r s t noticed by James Woodahl on February 13, 1980. James Woodahl h i r e d W i l l i a m Ferro t o p r o f e s s i o n a l l y a p p r a i s e t h e house p r i o r t o t h e signing of t h e c o n t r a c t agreements. M r . Ferro d i d not observe t h e unlevel condition when he appraised t h e home, nor d i d he discover any evidence of settlement. He appraised t h e home a t $190,000. H e estimated t h a t t h e unlevel condition would reduce t h e value of t h e home by t e n t o f i f t e e n percent. I n i t s f i n d i n g s of f a c t , t h e D i s t r i c t Court found t h a t M r s . atth thews was not aware of an unlevel condition i n portions of t h e home when it was sold t o t h e Woodahls." The c o u r t a l s o found " t h a t t h e unlevel condition i n p o r t i o n s of t h e home was not observable by persons engaged i n normal usage of t h e home, d i d n o t a f f e c t t h e h a b i t a b i l i t y of t h e home and d i d not prevent t h e Woodahls from using t h e home f o r t h e purpose which they o r i g i n a l l y intended." Matthews was n o t found t o be g u i l t y of fraud o r misrepresentation; mutual mistake between t h e two p a r t i e s was n o t found t o e x i s t ; and no m a t e r i a l f a i l u r e of consideration warranting a r e s c i s s i o n of t h e agreement was found. Therefore, t h e c o u r t concluded, s i n c e t h e home was h a b i t a b l e d e s p i t e t h e unlevel conditions, "Woodahls received t h e property f o r which they bargained." F i n a l l y , t h e c o u r t held Matthews n o t l i a b l e f o r damages a s a r e s u l t of t h e unlevel condition of t h e home and found Matthews e n t i t l e d t o s p e c i f i c performance of t h e agreements. O n appealing t h e order f o r s p e c i f i c performance, Woodahls r a i s e d t h e following i s s u e s : (1) Whether t h e D i s t r i c t Court abused i t s d i s c r e t i o n i n r e f u s i n g t o g r a n t r e l i e f on t h e theory of express warranty. ( 2 ) Whether t h e District Court abused i t s d i s c r e t i o n by f a i l i n g t o f i n d t h a t t h e defendant had knowledge of t h e d e f e c t i v e condition of t h e home when she s o l d it t o t h e p l a i n t i f f s . ( 3 ) Whether t h e ~ i s t r i c t Court abused i t s d i s c r e t i o n by f a i l i n g t o g r a n t r e s c i s s i o n of t h e c o n t r a c t s involved. ( 4 ) Whether t h e D i s t r i c t Court abused i t s d i s c r e t i o n i n r e f u s i n g t o g r a n t r e l i e f on t h e b a s i s of c o n s t r u c t i v e fraud o r u n j u s t enrichment. (5) Whether, having f a i l e d t o g r a n t r e s c i s s i o n , t h e D i s t r i c t Court abused i t s d i s c r e t i o n by f a i l i n g t o award damages t o t h e p l a i n t i f f s . W e w i l l d i s c u s s t h e i s s u e of warranty, consolidate our discussion of t h e i s s u e s bearing on r e s c i s s i o n and, because we affirm, t h e damage i s s u e is moot. WHETHER THE DISTRICT COURT A B U S E D ITS DISCRETION I N REFUSING TO G R A N T RELIEF ON THE THEORY O F EXPRESS WARRANTY. Not only d i d t h e D i s t r i c t Court r e f u s e t o g r a n t r e l i e f on t h e theory of express warranty, it t o t a l l y f a i l e d t o address t h e i s s u e i n i t s f i n d i n g s of f a c t and conclusions of law. Upon reviewing t h e testimony concerning express warranties and applying r e l e v a n t c o n t r a c t law t o t h e f a c t s a s we found them, we agree t h a t r e l i e f should n o t have been granted a p p e l l a n t on t h e theory of express warranty. I n t h e l i s t i n g f o r t h e house, M r s . Matthews described t h e condition of h e r home a s e x c e l l e n t . However, nowhere i n t h e i r testimony i s t h e r e an i n d i c a t i o n t h a t e i t h e r M r . o r M r s . Woodahl r e l i e d on t h a t l i s t i n g statement when deciding whether o r not t o purchase t h e house. There can be no express warranty without r e l i a n c e . Jones v. Armstrong (1915), 50 Mont. 168 a t 175, 145 P. 949 a t 951. M r . and M r s . Woodahl d i d s t a t e t h a t on t h e i r second t o u r of t h e house, they asked M r s . Matthews: " A r e t h e r e any problems with t h i s house?" M r s . Matthews a l l e g e d l y r e p l i e d : "None whatsoever." M r . Woodahl s t a t e d t h a t he r e l i e d on t h i s comment when deciding whether t o purchase t h e house. M r s . Matthews denied t h a t conversation ever occurred. The t r i a l c o u r t f a i l e d t o make a finding of f a c t regarding t h e occurrence of t h i s purported conversation. However, even i f t h e c o u r t had found t h a t t h e conversa- t i o n d i d t a k e p l a c e and t h a t M r . Woodahl d i d r e l y on M r s . Matthews' response, r e l i e f should not have been granted on t h e theory of express warranty. A Real Property Purchase Agreement was signed by t h e p a r t i e s on January 8, 1980, which contained t h e following clauses: "8. Conveyance of t h e real property and i m - provements t o Purchaser s h a l l be by general warranty deed. Acceptance of t h e deed by Purchaser s h a l l be deemed t o be, and c o n s t i - t u t e , f u l l performance and discharge of every agreement and o b l i g a t i o n set f o r t h herein and no covenant of t h i s agreement s h a l l survive t h e c l o s i n g except a s s p e c i f i c a l l y s e t f o r t h herein. " and "12. This Agreement c o n s t i t u t e s t h e s o l e and e n t i r e agreement between t h e p a r t i e s and super- sedes any and a l l p r i o r w r i t t e n o r o r a l repre- s e n t a t i o n s , promises, covenants, understand- ings, o r o t h e r agreements between t h e p a r t i e s . " Written c o n t r a c t s supersede a l l o r a l negotiations which preceded t h e signing of t h e c o n t r a c t . Section 28-2-904, MCA, s t a t e s : " E f f e c t of w r i t t e n c o n t r a c t on o r a l agreements. The execution of a c o n t r a c t i n w r i t i n g , whether t h e l a w r e q u i r e s it t o be w r i t t e n o r n o t , super- sedes a l l t h e o r a l negotiations o r s t i p u l a t i o n s concerning i t s matter which preceded o r accom- panied t h e execution of t h e instrument." Pursuant t o t h i s s e c t i o n , Woodahls' execution of t h e Real Property Purchase Agreement served t o waive a l l o t h e r o r a l r e p r e s e n t a t i o n s made by Matthews t o t h e Woodahls. This would have included t h e comment "none whatsoever," had t h a t comment been made by Matthews and r e l i e d upon by Woodahls. WHETHER THE DISTRICT COURT A B U S E D ITS DISCRETION BY FAILING TO GRANT RESCISSION O F THE CONTRACTS INVOLVED. Section 28-2-1711, MCA, governs when a p a r t y may r e s c i n d a c o n t r a c t . Section 28-2-1711(1), MCA, allows r e s c i s s i o n when " t h e consent of t h e p a r t y rescinding . . . w a s given by mistake o r obtained through d u r e s s , menace, f r a u d , o r undue influence . . ." Appellants i n t h i s case a l l e g e both mistake and fraud, s p e c i f i c a l l y c o n s t r u c t i v e fraud. Constructive fraud i s defined i n s e c t i o n 28-2-406, MCA, t h e r e l e v a n t p o r t i o n of which s t a t e s : "Constructive fraud c o n s i s t s i n : " ( 1 ) any breach of duty which, without an a c t u a l l y fraudulent i n t e n t , gains an advan- t a g e t o t h e person i n f a u l t o r anyone claim- i n g under him by misleading another t o h i s p r e j u d i c e o r t o t h e p r e j u d i c e of anyone claiming under him." This Court i n Mends v. Dykstra (1981), Mont. I P. 2d , 38 St.Rep. 2010, extended t h e concept of c o n s t r u c t i v e fraud t o t r a n s a c t i o n s such a s a c o n t r a c t f o r t h e purchase of a house. Therefore, c o n s t r u c t i v e fraud may be r a i s e d a s an i s s u e i n t h i s case; however, pursuant t o t h e express terms of s e c t i o n 28-2-406(1), MCA, c o n s t r u c t i v e fraud r e q u i r e s t h e breach of a duty. Therefore, a f a c t u a l determination regarding t h e existence of a duty must be made p r i o r t o any finding of c o n s t r u c t i v e fraud. The D i s t r i c t Court determined t h a t "Matthews w a s n o t aware of an unlevel condition i n p o r t i o n s of t h e home when it was s o l d t o t h e Woodahls . . ." Testimony by M r s . Matthews and s e v e r a l c o n t r a c t o r s who performed work on t h e house s u b s t a n t i a t e t h i s finding. I n a d d i t i o n , a p p e l l a n t s f a i l e d t o n o t i c e t h e condition on two occasions and t h e i r p r o f e s s i o n a l a p p r a i s e r t e s t i f i e d t o being unaware of t h e condition a t t h e t i m e he conducted t h e a p p r a i s a l . The f i n d i n g s of f a c t and conclusions of law of t h e D i s t r i c t Court " w i l l n o t be disturbed i f supported by s u b s t a n t i a l evidence and by t h e law." ~ a u t e r j w g v. Johnson (1977), 175 Mont. 74 a t 77, 572 P. 2d 511 a t 512-513. W e f i n d t h e r e t o be s u b s t a n t i a l c r e d i b l e evidence t o support t h i s f i n d i n g of f a c t and t h e r e f o r e uphold t h e District C o u r t ' s determination t h a t M r s . Matthews was unaware of t h e d e f e c t i v e c o n d i t i o n a t t h e t i m e she s o l d t h e house t o t h e Woodahls. Since M r s . Matthews was unaware of t h e d e f e c t , she was under no duty t o d i s c l o s e t h e d e f e c t t o t h e Woodahls. This Court i n Moschelle v . Hulse (1980), Mont . , 622 P.2d 155, 37 %Rep. 1506, made it c l e a r t h a t knowledge of a d e f e c t is necessary b e f o r e t h e duty t o d i s c l o s e t h e d e f e c t e x i s t s . Therefore, pursuant t o s e c t i o n 28-2-406, MCA, M r s . Matthews i s n o t g u i l t y of c o n s t r u c t i v e f r a u d a s she had no duty t o breach. W e a f f i r m t h e D i s t r i c t C o u r t ' s conclusion t h a t M r s . Matthews was n o t g u i l t y of c o n s t r u c t i v e fraud. The D i s t r i c t Court a l s o determined t h a t t h e Woodahls received t h a t f o r which they had bargained. The t r i a l c o u r t found : "Woodahls received t h e p r o p e r t y f o r which they bargained. N o c o n d i t i o n of t h e home r e n d e r s it u n i n h a b i t a b l e o r u n f i t f o r t h e purposes which they intended. I n s o f a r a s t h e purpose of t h e agreements was t o f u r n i s h t h e Woodahls w i t h a home t o l i v e i n , t h a t purpose was n o t f r u s t r a t e d by t h e unlevel c o n d i t i o n of a por- t i o n of t h e home." This determination by t h e t r i a l c o u r t i s n o t c o n t e s t e d on appeal by a p p e l l a n t s . There i s s u b s t a n t i a l c r e d i b l e evidence t o support t h i s conclusion a s t h e Matthews r e s i d e d i n t h e home f o r t e n y e a r s . Thus, t h e conclusion is accepted a s s t a t e d . I n o r d e r f o r a mutual mistake by t h e p a r t i e s t o a c o n t r a c t t o warrant r e s c i s s i o n of t h e c o n t r a c t , t h e mistake must be " s o s u b s t a n t i a l and fundamental a s t o d e f e a t t h e o b j e c t of t h e p a r t i e s i n making t h e c o n t r a c t . " Johnson v. Meiers (1946), 118 Mont. 258, 164 P.2d 1012. The t r i a l c o u r t found no mutual mistake e x i s t e d . However, even i f a mutual mistake had been found, t h e mistake d i d n o t a f f e c t " t h e o b j e c t of t h e p a r t i e s i n making t h e c o n t r a c t " and r e s c i s s i o n on t h e b a s i s of mutual mistake does n o t l i e . F i n a l l y , as t h e c o u r t held t h a t a p p e l l a n t s ' r e c e i v e d t h e property f o r which they had bargained, t h e r e i s no m a t e r i a l f a i l u r e of c o n s i d e r a t i o n . W e a f f i r m t h e D i s t r i c t C o u r t ' s d e c i s i o n n o t t o r e s c i n d . WHETHER, HAVING FAILED TO GRANT RESCISSION, T H E DISTRICT C O U R T ABUSED ITS DISCRETION BY FAILING T O AWARD D A M A G E S T O T H E PLAINTIFFS? W e have previously upheld t h e D i s t r i c t C o u r t ' s determination t h a t t h e r e w a s no b a s i s f o r r e s c i s s i o n . The same t r i a l c o u r t ' s f i n d i n g s f o r e c l o s e any claim upon which damages could be awarded. The t r i a l c o u r t made a n award of a t t o r n e y f e e s t o respondent. The a p p e l l a n t d i d n o t a s s i g n t h a t award a s e r r o r and d i d n o t mention t h e i s s u e i n i t s b r i e f . The m a t t e r is f i r s t discussed i n t h e r e p l y b r i e f which is l i m i t e d t o responding t o arguments made i n t h e answer b r i e f . Therefore, w e w i l l n o t consider t h e i s s u e on appeal. The judgment of t h e t r i a l c o u r t is affirmed. W e Concur: % + d 4 $ , ~-~ Chief J u s t i c e