Opinion ID: 2617670
Heading Depth: 1
Heading Rank: 8

Heading: Severability of Contracts

Text: As his first issue in his cross-appeal, Wentz argues that the district court incorrectly held that the option contract for the livestock was severable from the exchange agreement for the ranches. Based on this holding, the district court awarded compensatory damages to Sprouse for Wentz's breach of the option contract for livestock. Wentz contends that if the court had properly held that the two agreements were inseverable the livestock option contract would have been rescinded along with the exchange agreement, and Sprouse would not be entitled to any compensatory damages. Whether two agreements constitute a single, inseverable contract or two separate contracts is a question of law. Linebarger v. Devine, 47 Nev. 67, 72, 214 P. 532, 534 (1923); Bethea v. Investors Loan Corp., 197 A.2d 448 (D.C.App. 1964). We have announced that [w]hether a contract is entire, or separable into distinct and independent contracts, is a question of the intention of the parties, to be ascertained from the language employed and the subject-matter of the contract. Linebarger, 47 Nev. at 72, 214 P. at 534. The district court held that the exchange agreement and the option contract were severable. In so finding, the court focused on the form of the agreements. The consideration for the exchange of ranches and the consideration for the option contract for the livestock were completely different. Under the exchange agreement, Sprouse agreed to convey his Nevada ranch in exchange for Wentz's California ranch and a promissory note, while, under the option contract, Sprouse agreed to hold open an offer to sell in exchange for payment of a price by Wentz. While it is true that the consideration for the option contract is not intertwined with the consideration for the exchange agreement for the ranches, this analysis by the district court ignores the intention of the parties which, as we held in Linebarger, should be controlling concerning severability. Wentz cites to various points in the record that are quite convincing that Sprouse and Wentz intended all of their agreements to be inseverable. For example, the original exchange agreement provided for the sale of both ranch and livestock. When the livestock option was drawn up separately later due to changing conditions it was expressly incorporated into the exchange agreement. Wentz testified that, if he had acquired the livestock under the option and had not acquired the ranch, he would have had no place to put the livestock. And Sprouse himself testified: I don't see that you can separate the two [agreements]. It is apparent that the parties intended that the agreements not be severable. It is also apparent that the district court did not consider the parties' intentions when it came to the conclusion that the agreements should be severed into two contracts. Since the parties would not have contracted for the sale of livestock had they not been contracting at the same time to exchange ranches, the district court erred in holding that the exchange agreement and the option contract were two separate contracts. [2] The district court should have allowed rescission of the livestock option contract along with the exchange agreement. [3] Thus, the court's award of compensatory damages based on Wentz's breach of the option contract must be reversed.