Court Opinion

ID: 9796098
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:48:35.389227+00
Date Added: 2024-06-11T08:48:58.240547
License: Public Domain

McHUGH, Judge,
(concurring and dissenting):
T 34 Defendants argue that the trial court erred in finding a mutual mistake of fact as to the value and composition of the Kendall Agency. That contention is based both on Defendants' position that the contract itself precludes the finding of mistake on this issue and on the ground that the evidence does not support the trial court's finding of mistake. The majority rejects both arguments.
[ 35 While I agree that Defendants did not meet their obligation to marshal the evidence in connection with their challenge to the trial court's findings of fact, I believe that parties to a contract are free to allocate the risk of unknown or uncertain facts in their agreement. Therefore, I respectfully dissent from the majority's ruling and from the views expressed by Judge Thorne.
A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the cireumstances to do so.
Restatement (Second) of Contracts § 154 (1981).
136 Without limitations on the right of a party to claim mistake, the ability to contract when uncertain or subjective issues-such as value-are involved would be seriously impaired. See 27 Richard A. Lord, Williston on Contracts § 70:77, at 481 (4th ed. 2008) ("The ultimate value of the object of a contract involves a measure of uncertainty, and all parties to a contract assume the risk as to value. Such mistakes as to value are not grounds for rescission."). The law permits contracting parties to assign the risk of such subjectivity or uncertainty. Indeed, this court refused to rescind a real estate purchase contract where the defendants were aware that they had only limited knowledge of the property's value at the time they entered the contract, but proceeded anyway. See Klas v. Van Wagoner, 829 P.2d 135, 140-41 & n. 8 (Utah Ct.App.1992) (citing favorably Restatement (Second) of Contracts § 154 (1981)); see also State v. Patience, 944 P.2d 381, 387-88 (Utah Ct.App.1997) ("Under contract law, a party may not rescind an agreement based on mutual mistake where that party bears the risk of mistake.").
T37 Here, the evidence is uncontested that the transition from paper client files to an electronic database was not complete by the time of the sale of the Kendall Agency. Nevertheless, the parties went forward with the transaction and entered into a Purchase Agreement that states, in part:
Copies of the latest information concerning the business activities and financial affairs of Kendall Insurance Agency Inc. have been made available to and have been inspected by Buyer to its complete and total satisfaction incident to which Buyer has received the professional advilele and expertise of a certified public accountant retained by Buyer.
Defendants argue that this provision (the Satisfaction Clause)1 is sufficient to preclude Plaintiffs from asserting mistake as a basis for rescinding the contract.
1 38 The Satisfaction Clause may well have been an attempt to allocate to Plaintiffs the risk that the value of the Kendall Agency *124might be lower than either party believed. See Restatement (Second) of Contracts § 154(a). Alternatively, this clause may evidence an acknowledgment by Plaintiffs that they deemed their limited knowledge on this issue sufficient, thereby negating any later claim of mistake. See id. § 154(b); see also Deep Creek Ranch, LLC v. Utah State Armory Bd., 2008 UT 8, 118, 178 P.3d 886 (holding that, under contract, Armory assumed the risk as to [Utah General Services Agency)'s subsequent approval); Klos, 829 P.2d at 140-41 & n. 8 (concluding there was no mistake where buyers proceeded with purchase of property knowing that their knowledge regarding its value was limited).
39 From the record before us, the intent of the parties with respect to the Satisfaction Clause is uncertain. Consequently, I would remand for further findings on (1) whether it was the intent of the parties, by virtue of the Satisfaction Clause, to allocate to Plaintiffs the risk that the value of the Kendall Agency might be lower than either party thought, see Restatement (Second) of Contracts § 154(a); and (2) whether Plaintiffs assumed the risk that the value may be lower than the parties believed by going forward with the transaction despite their limited knowledge on this point, see id. § 154(b).2
{40 Even assuming that Plaintiffs were entitled to rescission, I am troubled by the trial court's failure to put Defendants, as closely as possible, in the position they were in before the transaction took place. "It must be possible to give relief by way of rescission without serious prejudice to the other party except the loss of his bargain. In other words, it must be possible to put him in status quo." Klas, 829 P.2d at 139 (internal quotation marks omitted); see also 50 W. Broadway Assocs. v. Redevelopment Agency, 784 P.2d 1162, 1170-71 (Utah 1989) ("Generally, if the parties cannot be put back in status quo, a contract can be rescinded only where the clearest and strongest reason and equity imperatively demand it." (internal quotation marks omitted)).
141 In this case, both parties sought to terminate the contract, giving ownership of the Kendall Agency back to Defendants. And, both parties were entitled to be returned to their presale position to the extent possible. "The goal of rescission is to restore the status quo that existed prior to the parties' agreement." Amderson v. Doms, 2008 UT App 241, T6, 75 P.3d 925 (internal quotation marks omitted); see also Ong Int'l (U.S.A.) Inc. v. 11th Ave. Corp., 850 P.2d 447, 457 (Utah 1998). How or whether that goal can be accomplished is within the sound discretion of the trial court. See Ong Int'l, 850 P.2d at 457; Anderson, 2008 UT App 241, 1 6. Despite this deference, remand is appropriate where return of the parties to their prior positions is not accomplished to the extent possible under the circumstances. See Robert Langston, Ltd. v. McQuarrie, 741 P.2d 554, 558 (Utah Ct.App.1987) (holding trial court's order denying return of earnest money erroneous even though contract was rescinded).
142 Here, Defendants argue that they were not made whole because the value of the business declined by approximately $110,000 during the time it was under the control of Plaintiffs. Defendants raised this issue in their second order to show cause, but agreed that it could be considered as part of the bench trial on the merits. After trial, the court did not enter any findings of fact or conclusions of law directly related to that issue. From the findings that were entered, it appears that the trial court agreed that the value of the business had suffered, but that "Itlhe actions of both Plaintiffs and Defendants, including their communications with third parties, clients, and insurance agencies, were detrimental to and impaired the relationships which had been established previously through the operations of the Kendall Agency."
143 In Defendants' subsequent rule 60(b) motion, they sought relief from the trial court's decision. Rather than seeking addi*125tional findings, Defendants asked that they be permitted to retain the $75,000 down payment as an offset against the devaluation of the Kendall Agency caused by Plaintiffs. The trial court denied Defendants' request. I believe that Defendants' rule 60(b) motion was well taken because the failure to make restitution to Defendants for the portion of the devaluation caused by Plaintiffs was error. Cf. Breuer-Harrison, Inc. v. Combe, 799 P.2d 716, 731 (Utah Ct.App.1990) ("'In the case of a rescission, the buyers are entitled to be returned to the status quo and to recover the payments made on the contract, less the fair rental value of the premises for the time they had possession thereof!" (quoting Dugan v. Jones, 724 P.2d 955, 957 (Utah 1986))). To return the parties as closely as possible to the status quo, it is appropriate to make Defendants bear the losses caused by their behavior, but also to require Plaintiffs to bear that portion of the damage to the business for which they are responsible. Thus, I would remand for specific findings concerning the amount of value the business lost while the contract was in foree and the portion of that loss attributable to each party. For example, if the loss to the business is found to be $110,000 as alleged by Defendants, and each party is found equally responsible for that loss, I would allow Defendants to offset $55,000 against the $75,000 down payment to be returned to Plaintiffs.3
I 44 For the reasons stated above, I would remand for additional findings concerning the intent of the parties and the amount of and responsibility for any decrease in the Kendall Agency's value.4

. Defendants refer to this paragraph as an "as is" provision. Because there is no language in the contract that expressly states that Plaintiffs are accepting the Kendall Agency "as is," I refer to the provision as "the Satisfaction Clause."

. The majority holds that Defendants did not argue allocation of risk to either the trial court or this court. See supra 115 n. 2. I respectfully disagree. It is my view that Defendants' argument-that the Satisfaction Clause of the contract foreclosed the possibility of a claim of mutual mistake as to value-adequately presented the issue of whether the contract was intended to allocate that risk to Plaintiffs.

. I use these figures for illustrative purposes only, recognizing that the trial court is in the best position to determine the actual diminution in value, if any, and each party's proportionate responsibility for that loss.

. I agree with the majority that Defendants waived their claim for additional attorney fees by failing to submit an affidavit of such fees as ordered by the trial court.