Opinion ID: 2182093
Heading Depth: 1
Heading Rank: 2

Heading: club's appeal

Text: The dispositive issue in the Club's cross appeal is whether the trial court erred in determining that Schmidt's action was not barred by the six-year statute of limitations. We agree with the Club's assertion that, under the circumstances, Schmidt's action is barred. An action for rescission brought under § 9-09-04, N.D.C.C., is subject to the six-year statute of limitations contained in § 28-01-16(1), N.D.C.C. [1] Wock v. Kuhn, 221 N.W.2d 65 (N.D.1974); Mitzel v. Schatz, 175 N.W.2d 659 (N.D.1970). We believe that under § 28-01-16 an action for rescission based on failure of consideration accrues when the facts which constitute the failure of consideration have been, or in the exercise of reasonable diligence should have been, discovered by the party applying for relief. See Ell v. Ell, 295 N.W.2d 143 (N.D.1980); Whatley v. National Bank of Commerce, 555 S.W.2d 500 (Tex. Civ.App.1977); 54 C.J.S. Limitations of Actions § 208(a) (1987). This conclusion comports with the well-established principle codified in § 9-09-04(1), N.D.C.C., that a party who fails to promptly exercise the right of rescission upon discovery of the facts necessary to rescind waives that right. [2] E.g., Lindemann v. Lindemann, 336 N.W.2d 112 (N.D.1983). Section 9-09-04(1) provides:  9-09-04. Rules governing rescission. Rescission, when not effected by consent or pursuant to sections 9-08-08 and 9-08-09, can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules: 1. He shall 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;. . . In Berg v. Hogan, 322 N.W.2d 448, 451 (N.D.1982), we interpreted the phrase, discovering the facts which entitle him to rescind, as meaning that notice of facts and circumstances which would put a person of ordinary prudence and intelligence on inquiry is, in the eyes of the law, equivalent to knowledge of all of the facts a reasonable diligent inquiry would disclose. In construing the phrase aware of his right to rescind, we stated: We believe a party after acquiring knowledge of the facts has a responsibility to promptly find out, if not known, what legal rights result from them.... The party, in effect, has a two-fold responsibility to find out what the facts actually are and then find out what legal rights result from those facts, if the party is not aware of the resulting legal rights. Failure to do so will be construed against the party. Berg v. Hogan, supra, 322 N.W.2d at 453. Although our comments in Berg v. Hogan related to whether the plaintiff had waived the right to rescind under the provisions of § 9-09-04 [see Footnote 2, supra ], the principles stated are equally relevant in determining when a cause of action for rescission has accrued for purposes of applying the six-year statute of limitations. Generally, the determination of when a plaintiff's cause of action has accrued for purposes of applying a statute of limitations is a question of fact which will not be overturned on appeal unless clearly erroneous under Rule 52(a), N.D.R.Civ.P. E.g., Herzog v. Yuill, 399 N.W.2d 287 (N.D.1987); Phoenix Assur. Co. of Canada v. Runck, 366 N.W.2d 788 (N.D.1985). Upon a review of the record in this case, we are left with a definite and firm conviction that the trial court was mistaken in finding that Schmidt's cause of action for rescission based on failure of consideration did not accrue until the end of 1981. Schmidt testified that when he bought his original lot in 1963, he intended to use the lot for residential purposes. Schmidt acknowledged that in 1972 he knew that a plat had not been recorded for the property and that he could not obtain a building permit to use his lot for residential purposes because of the minimum lot-size requirement. Thus, Schmidt was aware of grounds for rescission as early as 1972. Schmidt asserts, however, that any delay in instituting suit was justified because of the Club's delay in giving him a final definite answer that it had no intention of doing anything with regard to development of the lots. The doctrine of equitable estoppel may operate to preclude the application of a statute of limitations as a defense by one whose actions mislead another, thereby inducing him to not file a claim within the statute of limitations. Szarkowski v. Reliance Ins. Co., 404 N.W.2d 502 (N.D.1987). Thus, a delay may be excusable where, provided it is not unreasonably protracted, it is induced by defendant's promises, suggestions, or assurances which, if carried into effect, would result in a solution or adjustment without litigation. 12A C.J.S. Cancellation of Instruments § 70(a), at p. 758-759 (1980) [Footnotes omitted]. The reason for the rule is that one cannot justly or equitably lull his adversary into a false sense of security, and thereby cause his adversary to subject his claim to the bar of the statute of limitations, and then be permitted to plead the very delay caused by his course of conduct as a defense to the action when brought. Annot., Promises to settle or perform as estopping reliance on statute of limitations, 44 A.L.R.3d 482, 488 (1972). While the mere conduct of settlement negotiations or discussions by a defendant with a plaintiff does not alone provide a basis for estopping the defendant from pleading the statute of limitations [Annot., Settlement negotiations as estopping reliance on statute of limitations, 39 A.L.R.3d 127, 131 (1971) ], it is sufficient if the defendant's `conduct or promises are such as are naturally calculated to and do induce plaintiff into a belief that his claim would be adjusted if he did not sue.' Szarkowski v. Reliance Ins. Co., supra, 404 N.W.2d at 507 [quoting Douglass v. Douglass, 199 Okl. 519, 188 P.2d 221, 224 (1947)]. The trial court found that there were continuing discussions concerning development of the property between Schmidt and the Club, but that there is no indication of bad faith on the part of the [Club].... The continuing discussions concerning development of the property were instigated by Schmidt and it does not clearly appear from the record that the Club ever specifically promised or assured Schmidt that the property would be developed as originally proposed. Even assuming that because of the Club's apparent willingness to listen and cooperate with Schmidt during the 1970's it was estopped from relying on the statute of limitations at that time, we nevertheless conclude that Schmidt's action is barred. [A] plaintiff may not invoke the doctrine of equitable estoppel against a defendant unless the plaintiff exercises due diligence in commencing the appropriate legal proceeding after the circumstances giving rise to estoppel have ceased to be operational, that is, after plaintiff has notice, actual or constructive, that he must resort to legal recourse and may no longer rely upon agreements, promises, representations to the contrary, or conduct or deceptive practices which may have lulled him into a sense of security. Annot., Plaintiff's diligence as affecting his right to have defendant estopped from pleading the statute of limitations, 44 A.L.R.3d 760, 764 (1972) [Footnote omitted]. The record reflects that Schmidt attended an annual meeting of stockholders in January 1980 and was told that the Club did not have any money available to develop the lots for residential purposes. When questioned about the acquisition of the seven additional lots in 1979 and 1980, Schmidt testified: Q You entered into this and bought those lots, as we would say, as being speculative? A I was helping the Country Club, in my mind, or working with the Country Club to try and get these lots resolved. There was nothing done on these lots. No one ever wanted to do anything on these lots. I offered to do something with it. I contacted all of the lot owners. Q Prior to you going out and buying those lots in 1979 and 1980, you had the option, didn't you, of doing nothing other than going to the Country Club and saying I want my $2,000 back? A I had that option, that's correct. Q You chose not to follow that option? A I chose to try and promote the building of residential property on the Country Club, that's correct. Q Without any formal Board authority? A To my knowledge there wasn't any, that's right. In order to help promote the development of the lots, Schmidt during 1980 made proposals to the Club to redesign the lot lines and to exchange lots. The trial court found that the Club informed Schmidt of its rejection of both proposals during 1980. We believe Schmidt's actions in this regard are especially significant because they underscore his actual knowledge that the Club would not follow through with its part of the original bargain, i.e., providing for the residential use of Schmidt's original lot. Schmidt's proposals to redesign the lot lines and to exchange lots with the Club were no longer efforts to have the Club meet its original obligation, but were efforts to seek other remedies to rectify the problem. Schmidt's unilateral actions did not toll the obligation to rescind promptly. Thus, we conclude that in 1980, Schmidt had, or should have had, knowledge not only of his right to rescission, but that the Club had no intention of doing anything to further the development of the lots. The trial court's finding that Schmidt's cause of action for rescission accrued at the end of 1981 is clearly erroneous. [3] Because Schmidt filed his action in May 1987, more than six years after his action for rescission accrued, we conclude that Schmidt's rescission action was barred as a matter of law by § 28-01-16, N.D.C.C. Accordingly, the judgment awarding Schmidt $2,000 is reversed. In all other respects, the judgment is affirmed. ERICKSTAD, C.J., and LEVINE, MESCHKE and GIERKE, JJ., concur.