Opinion ID: 2630629
Heading Depth: 2
Heading Rank: 4

Heading: Counterclaims against Seller

Text: The Court of Appeals reinstated Purchaser's mutual mistake counterclaim, citing Purchaser's mistaken belief about the size of the Denaxas property and Seller's duty to inform Purchaser that the information in the Agreement was inaccurate. Denaxas, noted at 107 Wash.App. 1055, slip op. at 11-12. The elements of mistake are as follows. [8] A mistake is a belief not in accord with the facts. Simonson v. Fendell, 101 Wash.2d 88, 91, 675 P.2d 1218 (1984). The belief must be held at the time the contract is made. See id. The mistake must relate to a basic assumption on which both parties relied when making the contract. Pub. Util. Dist. No. 1 of Lewis County v. Wash. Pub. Power Supply Sys., 104 Wash.2d 353, 362, 705 P.2d 1195 (1985), 713 P.2d 1109 (1985). It must have a material effect on the agreement. See Seattle Prof'l Eng'g Employees Ass'n v. Boeing Co., 139 Wn.2d 824, 832, 991 P.2d 1126 (2000), 1 P.3d 578 (2000) (hereinafter SPEEA ). Finally, a party may invoke the mistake doctrine only if the party did not bear the risk of mistake. Pub. Util. Dist. No. 1, 104 Wash.2d at 362, 705 P.2d 1195. A party with constructive knowledge of the circumstances giving rise to the alleged mistake does not hold a belief not in accord with the facts. Other jurisdictions have held that constructive knowledge precludes reformation or rescission of a contract. See, e.g., Hoff v. Sander, 497 S.W.2d 651 (Mo.Ct.App. 1973) (rescission); Hartle v. United States, 22 Cl.Ct. 843 (1991) (same); C & L Constr. Co. v. United States, 6 Cl.Ct. 791 (1984) (reformation). In Hoff, the parties entered into a land lease believing that the use intended by the lessees was permitted by the zoning laws. In fact, the laws prohibited that use. The court considered both actual and constructive knowledge of the parties. Because contracting parties are charged with knowledge of the law, the court held that the plaintiffs could not claim that they were mistaken about the allowable uses. Hoff, 497 S.W.2d at 653. The Hoff court reversed the trial court's grant of rescission. Id. See also Hartle, 22 Cl.Ct. at 849 (holding that real estate purchasers charged with knowledge of zoning laws and facts in public records were not able to rescind the contract based on mutual mistake). The same reasoning applies in this case. Purchaser is charged with constructive knowledge of the correct square footage and the correct legal description. It is true that, when viewed in the light most favorable to Purchaser, the facts indicate that Purchaser held a mistaken belief at the time of entering into the Agreement in November 1997. Purchaser believed the Denaxas property comprised three full lots and 27,260 square feet. However, in the eyes of the law, Purchaser knew the accurate measurements and description of what it was buying by the time of closing, as discussed above. Therefore, Purchaser did not hold a mistaken belief at the time of entering into the note and deed of trust in November 1998, when the sale of the Denaxas property was consummated. Our jurisprudence has held that a party's negligence in failing to discover the facts or read the writing to be certain it is correct need not bar the remedy of reformation in the case of mistake. Wash. Mut. Sav. Bank v. Hedreen, 125 Wash.2d 521, 529-31, 886 P.2d 1121 (1994). Nevertheless, reformation is not available to Purchaser in this case. Reformation is an equitable remedy employed to bring a writing that is materially at variance with the parties' agreement into conformity with that agreement. Akers v. Sinclair, 37 Wash.2d 693, 702, 226 P.2d 225 (1950). A party may seek reformation of a contract if (1) the parties made a mutual mistake or (2) one of them made a mistake and the other engaged in inequitable conduct. Hedreen, 125 Wash.2d at 525, 886 P.2d 1121. However, reformation is justified only if the parties' intentions were identical at the time of the transaction. SPEEA, 139 Wash.2d at 832-33, 991 P.2d 1126. The party seeking reformation must prove the facts supporting it by clear, cogent and convincing evidence. Akers, 37 Wash.2d at 703, 226 P.2d 225; Kaufmann v. Woodard, 24 Wash.2d 264, 269, 163 P.2d 606 (1945). In SPEEA, Boeing had a longstanding practice of having an unpaid orientation day before starting some of its employees. Boeing sent letters to prospective employees stating that they would be put on the payroll after the orientation day. Later, the Washington State Department of Labor and Industries determined that the orientation constituted work, and employees brought suit. They claimed that their employment contracts should be reformed to compensate them for the orientation based on the mistaken belief that the orientation activities were not work. This court would not grant the employees reformation because their intentions were not identical to Boeing's. SPEEA, 139 Wash.2d at 833, 991 P.2d 1126. The court held that [a]though some of the employees may have expected compensation for attending orientation, this expectation was never communicated to Boeing. Additionally, it is clear from the record Boeing never intended to pay for orientation and communicated this fact to the employees. Id. The record in this case indicates that Purchaser and Seller shared the identical intention of transferring the Denaxas property, an intention that was not precisely reflected in the agreement. However, Purchaser's principal concern is reformation of the purchase price. Purchaser contends that it formulated a price offer based on square footage. However, it never communicated this intent to Seller. Purchaser cannot show by clear, cogent, and convincing evidence that Seller shared this intent. This court cannot rewrite a contract to force a bargain that the parties never made. See Childers v. Alexander, 18 Wash.App. 706, 710-11, 571 P.2d 591 (1977). Therefore, reformation is not appropriate in this case. We reverse the Court of Appeals and hold that because Purchaser had constructive knowledge of the true facts at the time of closing the transaction, it may not invoke the doctrine of mutual mistake. As there is no genuine issue of material fact regarding Purchaser's mistaken belief at the time of closing, summary judgment on Purchaser's mutual mistake claim is appropriate. We also hold that reformation is not a proper remedy because Purchaser cannot show an identical intention of the parties. Therefore, we reverse the Court of Appeals and affirm summary judgment in favor of Seller on reformation.
The trial court dismissed Purchaser's other counterclaims against Seller, one of which was a breach of warranty claim. This counterclaim was not analyzed by the Court of Appeals. Purchaser did not raise this issue until its supplemental brief. Under the Rules of Appellate Procedure, the Supreme Court will review only the questions raised in ... the petition for review and the answer, unless the Supreme Court orders otherwise upon the granting of the ... petition. RAP 13.7(b). As Purchaser did not raise this issue in its answer and the court did not extend review to other counterclaims the trial court had dismissed, it is not within the scope of this court's review.