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No. 99-518
IN THE SUPREME COURT OF THE STATE OF MONTANA
2001 MT 139
CAPE-FRANCE ENTERPRISES,
A Montana Partnership,
Plaintiff and Respondent,
v.
THE ESTATE OF LOLA H. PEED,
a/k/a LOLA PEED, f/k/a LOLA H.
JOHNSON, DECEASED
AND MARTHE E. MOORE,
Defendants and Appellants.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Mike Salvagni, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Carl A. Hatch, John C. Doubek, Small, Hatch, Doubek & Pyfer, Helena, Montana
For Respondent:
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Calvin L. Braaksma, Landoe, Brown, Planalp, Braaksma & Reida, Bozeman, Montana
Submitted on Briefs: April 12, 2001
Decided: August 2, 2001
Filed:
__________________________________________
Clerk
Justice James C. Nelson delivered the Opinion of the Court.
¶1 Cape-France Enterprises brought this action to rescind an agreement between the
parties for the sale of a tract of land in Bozeman, Montana. On cross-motions for summary
judgment the District Court granted summary judgment in favor of Cape-France. The
Estate of Lola Peed and Marthe Moore appeal from the District Court's order granting
summary judgment in favor of Cape-France. We affirm.
¶2 The dispositive issue on appeal is restated as follows:
¶3 Whether the District Court correctly concluded that the parties' buy-sell
agreement was unenforceable on the grounds of impossibility or impracticability and
correctly refused to order specific performance.
FACTUAL AND PROCEDURAL HISTORY
¶4 Cape-France Enterprises (Cape-France), is the owner of a tract of real property in
(1)
Bozeman, Montana. Lola Peed and her granddaughter Marthe Moore (Peed and Moore)
wished to buy a portion of that tract of land in order to build a motel or hotel. The two
parties worked through a real-estate agent in the arrangement of this transaction.
¶5 Cape-France entered into a buy-sell agreement in 1994 with Peed and Moore for the
purchase of a five acre portion of their land that was to be surveyed. The land had not been
subdivided at the time of the agreement and needed to be subdivided and re-zoned in order
for the sale to be completed. Closing was supposed to take place in September of 1994 but
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a plat creating the tract at issue was never recorded and the subdivision and closing never
took place.
¶6 The parties attempted to accomplish subdivision of the property but several obstacles
presented themselves. First, difficulties were encountered with the state and local agencies
responsible for approving the subdivision. According to the depositions, application files
were lost by the state more than once, which caused delays. Second, the parties
encountered difficulty in obtaining water, which ultimately needed to be procured in order
for subdivision to be approved. Water was not available to the land at the time the
agreement was made. According to the agreement, it was the responsibility of Peed and
Moore, as buyers, to bring water to the property. City water was not available, so
presumably, a well would have to be drilled for that water.
¶7 To complicate matters further, a pollution plume was spreading through the
groundwater in Bozeman in the area of the tract in question. Sometime during this process,
it was discovered that the plume was closer to the land than had been expected. It is not
clear where the pollution plume had moved, but state and local officials feared that it may
have spread, possibly underneath the tract.
¶8 The potential presence of the pollution plume presented an obstacle to the parties'
ability to subdivide the property. Ultimately, the Department of Environmental Quality,
Water Quality Division (DEQ) warned Cape-France that the subdivision would not be
approved unless a well was first drilled and tested. DEQ also warned that the pollution
plume may have advanced under Cape-France's property and if the testing of the well
water showed pollution in the water, the necessary treatment of this water would be
extensive. Further, DEQ warned that if the drilling or pumping of the water caused
expansion of the pollution, Cape-France, as the owner of the property, would be held
liable for the clean-up costs. This warning took place after the subdivision process was
commenced, making it clear to Cape-France that the completion of water drilling and
testing was required before subdivision would be approved. According to the record,
drilling and testing still have not been completed.
¶9 The warning came in December of 1995, when Cape-France received a notice from
DEQ, which informed it that the property was located within a groundwater contamination
site:
This letter is to inform you that perchlor[o]ethylene (PCE) has been detected in a
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well near the north boundary of old Highway 10 . . . . The contamination appears to
be extending north but the extent of the contamination is unknown. You and your
client need to be aware of the consequences resulting from drilling wells in the
vicinity of the plume. Water supply wells drilled in your proposed subdivision may
tap contaminated groundwater or may become contaminated over time with
pumping. If contaminated groundwater is encountered then advanced treatment of
the water will be required. The legal owners of the subdivision lots will be liable
under the Water Quality Act or other environmental laws (state or federal) if
pollution results from improper well construction or if contaminated groundwater is
pumped into a clean area.
¶10 Although the parties appear to have been aware of the existence of a pollution plume
in Bozeman, presumably originating from a dry cleaner in the area, they believed the
property at issue to be unaffected until receiving this notice.
¶11 A second letter was sent by DEQ to Cape-France, informing the partners that before
subdivision could be approved:
A well must be drilled and pump tested per WQB 3 3.2.4. Also, the well must be
sampled for VOCs in accordance with EPA method 524.2. The well that is drilled
and tested should be the proposed well that is closest to the Bozeman Solvent Site.
¶12 The District Court ruled, on cross-motions for summary judgment, that the agreement
could be rescinded on the basis of mutual mistake of fact, impossibility and
impracticability of performance and that specific performance would not be granted.
STANDARD OF REVIEW
¶13 Our standard of review on appeal from summary judgment rulings is de novo. See
Motarie v. N. Mont. Joint Refuse Disposal (1995), 274 Mont. 239, 242, 907 P.2d 154, 156,
Mead v. M.S.B., Inc. (1994), 264 Mont. 465, 470, 872 P.2d 782, 785. When we review a
district court's grant of summary judgment, we apply the same evaluation as the district
court based on Rule 56, M.R.Civ.P., Bruner v. Yellowstone County (1995), 272 Mont. 261,
264, 900 P.2d 901, 903. The movant must demonstrate that no genuine issues of material
fact exist. Once this has been accomplished, the burden then shifts to the non-moving
party to prove, by more than mere denial and speculation, that a genuine issue does exist.
Bruner, 272 Mont. at 264, 900 P.2d at 903.
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¶14 Ordinarily, such a review requires that we first determine whether the moving party
met its burden of establishing both the absence of genuine issues of material fact and
entitlement to judgment as a matter of law. Jarrett v. Valley Park, Inc. (1996), 277 Mont.
333, 338, 922 P.2d 485, 487. In this case, however, the facts are undisputed. Through their
cross-motions for summary judgment, each party asserted entitlement to judgment as a
matter of law. Therefore, our review is confined to the District Court's conclusions of law.
We review a district court's conclusions of law to determine whether the court's
interpretation of the law is correct. Carbon County v. Union Reserve Coal Co., Inc.
(1995), 271 Mont. 459, 469, 898 P.2d 680, 686.
DISCUSSION
¶15 Whether the District Court correctly concluded that the parties' buy-sell
agreement was unenforceable on the grounds of impossibility or impracticability,
and correctly refused to order specific performance.
¶16 Cape-France argues, and the District Court determined, that the contract should be
rescinded because the spread of the pollution and the potential liability involved with
drilling a well made subdivision of the property impossible or impracticable.
¶17 This Court has observed that, "impossibility of performance is a strict standard that
can only be maintained where the circumstances truly dictate impossibility. The general
rule is that, where a party to a contract obligates himself to a legal and possible
performance, he must perform in accordance with the contract terms." Barrett v. Ballard
(1980), 191 Mont. 39, 44, 622 P.2d 180, 184 (citation omitted). See also, 360 Ranch Corp.
v. R&D Holding (1996), 278 Mont. 487, 926 P.2d 260. However, "[i]mpossibility
encompasses not only strict impossibility but impracticability because of extreme and
unreasonable difficulty, expense, injury or loss involved." Smith v. Zepp (1977), 173
Mont. 358, 364, 567 P.2d 923, 927, quoting the Restatement of Contracts, Section 454.
¶18 The Montana Code allows for rescission of a contract based on impossibility, under §
28-2-603, MCA, providing:
Where a contract has but a single object and such object is unlawful, whether in
whole or in part, or wholly impossible of performance, or so vaguely expressed as to
be wholly unascertainable, the entire contract is void.
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¶19 Rescission of a contract under the doctrine of impossibility or impracticability, while a
strict standard, is not limited to literal impossibility, but also encompasses
impracticability. As observed by the Fourth Circuit Court of Appeals:
[M]odern authorities [have] abandoned any absolute definition of impossibility and,
following the example of the Uniform Commercial Code, have adopted
impracticability or commercial impracticability as synonymous with impossibility in
the application of the doctrine of impossibility of performance as an excuse for
breach of contract. Opera Co. of Boston v. Wolf Trap Foundation (4th Cir. 1987),
817 F.2d 1094, pp. 1098.
¶20 Commentators in this area of contracts have also noted the broadening scope of the
doctrine of impossibility or impracticability. Corbin observes that the modern doctrine of
impossibility of performance is one, "invented by the court in order to supplement the
defects of the actual contract" in the interest of reason, justice and fairness. 6 Corbin,
Contracts § 1331, p. 360. In addition, Williston views the enlargement of the doctrine as
making it "essentially an equitable defense, [which could] . . . be asserted in an action at
law" 18 Williston, Contracts, § 1931, p. 6.
¶21 The Restatement Second of Contracts explains that:
Even where the obligor has not limited his obligation by agreement, a court may
grant him relief. An extraordinary circumstance may make performance so vitally
different from what was reasonably to be expected as to alter the essential nature of
that performance. In such a case the court must determine whether justice requires a
departure from the general rule that the obligor bear the risk that the contract may
become more burdensome or less desirable."
¶22 The doctrine of impossibility found in the Restatement is relied upon by various
courts. The Michigan Court of Appeals in Bissell v. L.W. Edison Company (1967), 156 N.
W.2d 623, 626, relying on the Restatement of Contracts, Section 457, concluded that the
doctrine of impossibility is a valid defense not only when performance is impossible, but
also when supervening circumstances make performance impracticable. Section 457 of the
Restatement of Contracts, now Section 261 of the Restatement (Second) of Contracts
(1981) provides:
Discharge by Supervening Impracticability Where, after a contract is made, a
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party's performance is made impracticable without his fault by the occurrence
of an event the non-occurrence of which was a basic assumption on which the
contract was made, his duty to render that performance is discharged, unless
the language or the circumstances indicate the contrary. Restatement Second of
Contracts, § 261, p. 313.
The court observed that Section 261 defines impossibility to include, "not only strict
impossibility but impracticability because of extreme and unreasonable difficulty,
expense, injury and loss involved." Bissell, 156 N.W.2d at 626.
¶23 Courts may determine that an act is "impossible" in legal contemplation when it is not
practicable. Such an act is impracticable when it can only be done at an excessive,
unreasonable and unbargained-for cost. While the doctrine of impossibility or
impracticability is not set in stone, it is applied by courts where, aside from the object of
the contract being unlawful, the public policy underlying the strict enforcement of
contracts is outweighed by the senselessness of requiring performance.
¶24 The doctrine is applicable under the facts in the case at bar. As the District Court
noted in its Memorandum and Order:
[I]t is undisputed that after the agreement was executed, the state and local
regulatory authorities required the completion of water drilling and testing. The
parties discussed the situation. Cape France was unwilling to assume large risks
related to this new, unknown and unexpected situation. Peed- Moore was unwilling
to provide Cape-France with an indemnity agreement and bond which was
satisfactory to Cape-France.
Contamination, if it exists or occurs by reason of well-drilling, could expose Cape-France
as landowners to financial liability of an unquantifiable nature. The DEQ's letters dated
December 21, 1995 and January 12, 1996, contained information that the subdivision
would not be approved unless a satisfactory well was drilled, and noted that the proposed
subdivision could be in an area of groundwater contamination.
¶25 Peed and Moore argue that the contract should not be rescinded on the basis of
impossibility because it is not impossible to drill the well. They point to the letters as
evidence that the well could be drilled and that there is no proof that there would be actual
groundwater contamination where they would drill. However, Peed and Moore do not
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argue, and cannot argue, that there is no groundwater contamination, nor can they say that
there will not be any in the future. Unfortunately, the only way to determine whether there
is and, if so, the extent of groundwater contamination is to drill a well. And that is the
precise activity that may exacerbate the contamination problem, to both party's substantial
and unbargained-for economic detriment. Indeed, it is clear that Peed and Moore are
unwilling or unable to share in these economic risks.
¶26 Moreover, as already noted, while impossibility or impracticability is a high standard,
the application of this doctrine is not limited to cases of literal impossibility. Here, the
potential for substantial and unbargained-for damage involved in performing the contract
is not only of an economic nature. Just as importantly, environmental degradation with
consequences extending well beyond the parties' land sale is also a real possibility.
¶27 It is undisputed that the water system required for subdivision may tap into
contaminated groundwater and that pumping this water could spread the pollution plume
further into other, uncontaminated aquifers.
¶28 Perchloroethylene is a dangerous substance. Reports from the United States
Environmental Protection agency link contact with PCE to human health hazards as well
as with other adverse environmental effects. Health risks to humans may include
developmental toxicity, cancer, liver and kidney dysfunction, as well as short and long
term effects on the nervous system. PCE is also toxic to aquatic life such as fish and algae.
See, Cleaner Technologies Substitutes Assessment: Professional Fabricare Processes, U.S.
Environmental Protection Agency, Chapter Five, June 1998, EPA Doc 744-B-98-001.
¶29 We agree with the District Court's assessment. The record reflects that in order for
Cape-France to proceed further with the subdivision and zoning issues it would be forced
to expose itself, not only to substantial and unbargained-for economic risks but, as well,
the public would be exposed to potential health risks and possible environmental
degradation.
¶30 Peed and Moore, nonetheless, argue that potential liability is not a reason to rescind a
contract. They argue that the courts should force the parties to go through with the
contract. In the context of this case, however, this argument ignores an important--and, in
fact, a decisive--point.
¶31 Montana's Constitution, Article II, Section 3, guarantees all persons in this state the
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right to a clean and healthful environment. This guarantee is a fundamental right that may
be infringed only by demonstrating a compelling state interest. MEIC v. Department of
Environmental Quality, 1999 MT 248, ¶ 63, 296 Mont. 207, ¶ 63, 988 P.2d 1236, ¶ 63,
(recognizing that the right to a clean and healthful environment is a fundamental right
because it is guaranteed by the Declaration of Rights in Montana's Constitution.) We have
stated that a compelling state interest is, "at a minimum, some interest 'of the highest order
and . . . not otherwise served' " or " 'the gravest abuse[], endangering [a] paramount
[government] interest[]' ." Armstrong v. State, 1999 MT 261, 296 Mont. 361, 989 P.2d
364, at fn 6.
¶32 Moreover, interrelated with and interdependent upon Montanans' fundamental Article
II, Section 3 right to a clean and healthful environment is the mandate provided in Article
IX, Section 1, of our Constitution. This provision provides, in pertinent part, that "the
State and each person shall maintain and improve a clean and healthful environment in
Montana for present and future generations. . . . " While MEIC involved state action, we,
nonetheless, recognized that the text of Article IX, Section 1 applies the protections and
mandates of this provision to private action--and thus to private parties--as well. See,
MEIC, ¶ 64.
¶33 In light of these two provisions of Montana's Constitution, it would be unlawful for
Cape-France, a private business entity, to drill a well on its property in the face of
substantial evidence that doing so may cause significant degradation of uncontaminated
aquifers and pose serious public health risks. As already noted, a contract may be
rescinded where the object of the contract is unlawful. Section 28-2-603, MCA.
¶34 Moreover, for a court to mandate specific performance of the contract at issue on the
record here, would not only be to require a private party to violate the Constitution--a
remedy that no court can provide--but, as well, would involve the state itself in violating
the public's Article II, Section 3 fundamental rights to a clean and healthful environment,
and in failing to maintain and improve a clean and healthful environment as required by
Article IX, Section 1.
¶35 Furthermore, the law's interest in enforcing a contract for a land sale between two
private parties is hardly the sort of compelling state interest under the criteria that we
discussed in Armstrong that would justify this, or any court, ordering specific performance
of the parties' agreement given the fundamental constitutional rights at issue and the
substantial risk of violating those rights as demonstrated by the record here.
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¶36 As already noted, State and local officials required the drilling of a water well on
Cape-France property in order for the subdivision to be approved, but warned that if the
required well tapped into contaminated water and spread that contamination to the Cape-
France property, adjacent property or other aquifers, Cape France would be liable for the
contamination and subsequent cleanup under state and federal laws.
¶37 Causing a party to go forward with the performance of a contract where there is a very
real possibility of substantial environmental degradation and resultant financial liability
for clean up is not in the public interest; is not in the interests of the contracting parties;
and is, most importantly, not in accord with the guarantees and mandates of Montana's
Constitution, Article II, Section 3 and Article IX, Section 1.
¶38 Affirmed.
/S/ JAMES C. NELSON
We Concur:
/S/ PATRICIA COTTER
/S/ JIM REGNIER
/S/ TERRY N. TRIEWEILER
Justice W. William Leaphart, concurring:
¶39 I specially concur in the in the Court's resolution of the issue presented.
¶40 The Court states the issue on appeal as follows: Whether the District Court correctly
concluded that the parties' buy-sell agreement was unenforceable on the grounds of
impossibility or impracticality and correctly refused to order specific performance? This
Court, relying on the doctrine of impossibility of performance, Restatement (Second) of
Contracts (1981), affirms the District Court's assessment that the drilling of a well would
expose not only Cape-France but the public to potential health risks and possible
environmental degradation. The Court, however, then goes on to further conclude that
requiring Cape-France to go forward with performance (drilling of a well) where there is a
very real possibility of substantial environmental degradation would violate the guarantees
and mandates of Montana's Constitution, Article II, Section 3, and Article IX, Section 1.
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¶41 This Court recognizes the long-standing principle that courts should avoid
constitutional issues wherever possible. State v. Carlson, 2000 MT 320, ¶ 17, 302 Mont.
508, ¶ 17, 15 P.3d 893, ¶ 17; S.L.H. v. State Compensation Mutual Ins. Fund, 2000 MT
362, ¶ 14, 303 Mont. 364, ¶ 14, 15 P.3d 948, ¶ 14; and Wolfe v. State Dept. of Labor Ind.
(1992), 255 Mont. 336, 339, 843 P.2d 338, 340. Having resolved the issue presented under
the impossibility of performance doctrine, I would not address the constitutional issues.
/S/ W. WILLIAM LEAPHART
Justice Jim Rice dissenting:
¶42 I respectfully dissent. In my view, the majority misapplies the contract doctrine of
impossibility and impracticability. Moreover, I believe this case can and should be
resolved without reaching the constitutional issues-and without the sweeping
constitutional holding- reached by the majority.
¶43 The majority reasons that the facts here are undisputed, as each party asserted
entitlement to judgment as a matter of law in filing cross-motions for summary judgment.
However, the parties did not stipulate to the facts and argued different versions thereof to
this Court and to the court below. Neither the District Court nor this Court is obliged to
assume that the facts are undisputed when considering cross-motions for summary
judgment-and for good reason. As discussed herein, key facts to the proper adjudication of
the doctrine of contract impracticability have been overlooked and misapprehended. I
believe the District Court in the present case improperly concluded there were no issues of
material fact and misinterpreted the law. As such, I would reverse and remand for further
proceedings.
CONTRACT ISSUES
¶44 In affirming the District Court's order rescinding the parties' contract, the majority, in
my view, unnecessarily expands the doctrine of contract impossibility, in contravention to
our case law, and fails to use the abundant caution necessary when applying a rule which
allows a party to cancel its contractual obligations. We have previously observed that the
starting point for an analysis of impossibility of performance in Montana is the principle
that "[i]mpossibility of performance is a strict standard that can only be maintained where
the circumstances truly dictate impossibility." 360 Ranch Corp. v. R & D Holding (1996),
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278 Mont. 487, 493, 926 P.2d 260, 263 (citing Barrett v. Ballard (1980), 191 Mont. 39,
44, 622 P.2d 180, 184). Without mention of 360 Ranch Corp., the majority turns to
secondary authority to expand the doctrine to include impracticability. Whether or not this
is an advisable course of action, the majority fails, improperly in my view, to consider
whether the event rendering performance impracticable was foreseeable and whether the
risk was assumed by the parties. Further, the majority provides only a vague standard for
application of the doctrine: "[T]he doctrine of impossibility or impracticability is . . .
applied by courts where . . . the public policy underlying the strict enforcement of
contracts is outweighed by the senselessness of requiring performance." I respectfully
submit that the Court, in employing such vague concepts, has done a disservice to
fundamental contract law which will create considerable uncertainty.
¶45 The Court relies on Opera Co. of Boston v. Wolf Trap Foundation for Performing Arts
(4th Cir. 1987), 817 F.2d 1094, as authority for the doctrine of impossibility and
impracticability. However, for unstated reasons, the Court does not apply the three-part
test set forth in Opera Co. of Boston to the facts of this case. In Opera Co. of Boston, a
musical performance was canceled due to a severe lightning storm that disrupted the
power supply. The opera company sought payment notwithstanding, claiming they were
ready and able to perform their duties under the contract. The Fourth Circuit thoroughly
recited the evolution of the doctrines of impossibility and impracticability from the 1800's
to current jurisprudence, and identified the widely accepted three-part test to be used when
these doctrinal defenses are asserted in a contract action. A party relying on the defense
must establish (1) the unexpected occurrence of an intervening act; (2) the occurrence was
of such a character that its non-occurrence was a basic assumption of the agreement of the
parties; and (3) that occurrence made performance impracticable. When all of these
elements are established, the defense is made out. Opera Co. of Boston, 817 F.2d at 1102.
¶46 Because the occurrence must be unexpected, foreseeability of the occurrence is
inherent to the application of the test. In Opera Co. of Boston, the court said:
Foreseeability . . . is at best but one fact to be considered in resolving first how
likely the occurrence of the event in question was and, second whether its
occurrence, based on past experience, was of such reasonable likelihood that the
obligor should not merely foresee the risk but, because of the degree of its
likelihood, the obligor should have guarded against it or provided for non-liability
against the risk. This is a question to be resolved by the trial judge after a careful
scrutiny of all the facts in the case.
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Opera Co. of Boston, 817 F.2d at 1102-1103. The appellate court then remanded the case to the trial
court for a factual determination of whether the intervening occurrence-a thunder storm disrupting the
power supply-was potentially foreseeable, and whether the obligor should have provided for non-
liability or otherwise guarded against it. In contrast to Opera Co. of Boston, the case before us does not
involve anything as arguably unpredictable as the weather, making the need for proper application of the
doctrine even more compelling.
¶47 Here, the seller had actual and advance knowledge of the potential for the spreading of
the underground pollution. Indeed, the District Court determined, "the undisputed facts
show that Cape-France was aware that the plume extended from Buttrey's and was moving
northwesterly towards the subject property." Despite this knowledge, Cape-France, an
experienced developer, entered into a contract to sell the property to Peed and Moore and
made no effort to guard against the potential occurrence or to provide for potential liability.
¶48 It should not have come as a surprise to Cape-France when it was notified by the
Department of Environmental Quality that a testing requirement would be imposed upon
the proposed subdivision to be certain that the underground perchlorethylene plume had
not advanced to the vicinity. However, the District Court characterized this regulatory
requirement as a "new, unknown and unexpected development," that "could expose Cape-
France as landowners to liability exposure of an unquantifiable nature." On this basis, the
District Court concluded that "[i]t was impossible for Cape-France to proceed further with
the subdivision and zoning issues without exposing itself to a huge risk," and therefore,
Cape-France's performance of the contract was rendered impracticable.
¶49 In affirming the District Court, the majority ignores the issue of foreseeability by
relying on § 261 of the Restatement (Second) of Contracts, which does not require the
impracticability event itself to be unexpected. Rather, § 261 refers to those situations
where "performance has unexpectedly become impracticable as a result of a supervening
event." Restatement (Second) of Contracts § 261, cmt. a. (1981) (emphasis supplied). A
supervening event is one which occurs after the contract is made. The record is clear that
neither the plume, nor the relevant subdivision and environmental laws, are the result of
events which occurred after the contract in the present case was made. These pre-existed
the contract.
¶50 If this Court is going to turn to the Restatements for guidance, either § 264 or § 266 of
the Restatement (Second) of Contracts would be more applicable. Section 264 is an
extension of § 261, but addresses those specific instances where a contractual duty is
rendered impracticable by supervening governmental action:
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§ 264. PREVENTION BY GOVERNMENTAL REGULATION OR ORDER. If the
performance of a duty is made impracticable by having to comply with a domestic
or foreign governmental regulation or order, that regulation or order is an event the
non-occurrence of which was a basic assumption on which the contract was made.
Section 264 suggests wide latitude in interpreting the terms "regulation" and "order."
Thus, the Court could take the view that DEQ's determination to require a test well,
though based on laws and regulations which pre-existed the contract, were supervening
governmental orders. However, the Restatement would still require the Court to consider
whether the regulatory impediments at issue were foreseeable and the risks voluntarily
assumed by the parties. As the official Comment recognizes:
With the trend toward greater governmental regulation, however, parties are
increasingly aware of such risks, and a party may undertake a duty that is not
discharged by such supervening governmental actions, as where governmental
approval is required for his performance and he assumes the risk that approval will
be denied (Illustration 3). Such an agreement is usually interpreted as one to pay
damages if performance is prevented rather than one to render a performance in
violation of law.
Illustration 3, § 264, cmt. 1 (1981), Restatement (Second) of Contracts, is particularly
instructive and is set forth below:
A, a manufacturer of sewage treatment equipment, contracts to design and install a
central sewage treatment plant, for which B, a developer of a residential subdivision,
contracts to pay. The parties understand that A must obtain the approval of the state
Department of Health before installation. A is unable to install the plant because the
Department of Health disapproves the plans. If the court concludes, on the basis of
A's experience and the absence of any limitation in the contract, that A assumed the
risk that approval would be denied, it will decide that A's duty to install the plant is
not discharged and that A is liable to B for breach of contract. Cf. Illustration 3 to §
266.
Thus, if the Court has determined that supervening events impeded Cape-France's
performance, the Court should apply § 264, Restatement (Second) of Contracts, and then
consider whether Cape-France assumed such a risk under the contract.
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¶51 Alternatively, the Court could have determined that both the perchlorethylene plume
and the environmental and subdivision regulations existed at the time the contract was
made, and turned to § 266. Section 266 provides, in pertinent part, as follows:
§ 266. EXISTING IMPRACTICABILITY OR FRUSTRATION
(1) Where, at the time a contract is made, a party's performance under it is
impracticable without his fault because of a fact of which he has no reason to know
and the non-existence of which is a basic assumption on which the contract is made,
no duty to render that performance arises, unless the language or circumstances
indicate the contrary. . . .
Under either approach, the Court should analyze whether Cape-France had reason to know
the subject property might be exposed to perchlorethylene, that such a possibility could
impede the subdivision process, and whether such knowledge precluded a determination
that Cape-France was excused from performance. Both parties find support in the record
for contrary arguments regarding whether Cape-France should have been aware of
potential contamination problems and whether Cape-France assumed such risks under the
contract. Therefore, I would find that there are questions of material fact on these issues
which would preclude summary judgment.
¶52 Additionally, I believe there were questions of material fact regarding whether
performance was actually impracticable which should have precluded summary judgment.
The record is not at all clear that Cape-France would have been subject to liability of an
unquantifiable nature had it drilled the test well at issue. The basis for the District Court's
determination that summary judgment was appropriate were the letters from the
Department of Environmental Quality to Cape-France and its agents. On December 21,
1995, the Department wrote Mr. Springer, the engineer hired by Cape-France, stating as
follows:
The contamination appears to be extending north but the extent of the contamination
is unknown. You and your client need to be aware of the consequences resulting
from drilling wells in the vicinity of the plume. Water supply wells drilled in your
proposed subdivision may tap contaminated groundwater or may become
contaminated over time with pumping. If contaminated groundwater is encountered
then advanced treatment of the water will be required. The legal owners of the
subdivision lots will be liable under the Water Quality Act or other environmental
laws (state or federal) if pollution results from improper well construction or if
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contaminated groundwater is pumped into a clean area . . . . At this point you should
consider drilling a well on the site, conducting a pump test per WQB 3, 3.2.4, and
sample for VOCs per EPA Method 524.2 . . . [Emphasis added.]
¶53 The Department again wrote to Cape-France in January, 1996, this time notifying
Cape-France that the subdivision was almost ready to be approved, and again requesting
that the seller complete the well testing requirement:
Two items must be satisfied before the Department can issue approval on this subdivision:
1) A well must be drilled and pump tested per WQB 3, 3.2.4 . . . .
2) A plat of the proposed subdivision must be provided.
[Emphasis added.]
¶54 The District Court then erroneously confused the two different and distinct messages
which were conveyed to Cape-France by the Department's letters. First, considering the
possible effect of contamination in the area, the Department advised Cape-France, as the
subdivision applicant, that future water supply wells drilled to supply the ongoing water
needs for the subdivision, may, "over time," become contaminated, require treatment, and
impose liability. Secondly, in light of that possibility, the Department advised that it was
imposing a subdivision requirement upon Cape-France to drill a pump test well. The
purpose of the pump test well was not to provide for the subdivision's water supply, but to
determine whether the plume had yet affected the property.
¶55 Mistakenly assessing this evidence, the District Court erroneously concluded that the
drilling of a pump test well would impose upon Cape-France a potential "liability of an
unquantifiable nature." This Court then incorporated the District Court's error into its
opinion:
Unfortunately, the only way to determine whether there is [contamination] and, if
so, the extent of groundwater contamination is to drill a well. And that is the precise
activity that may exacerbate the contamination problem. . . . .
The majority has mistakenly confused the drilling of a test well-the standard and accepted
method of determining the location of the contamination-with the operation of future
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supply wells. A test well is not the "precise activity" that may exacerbate the
contamination problem. Rather, the Department warned that the long term pumping of
water supply wells on the property would present this risk.
¶56 The further significance of this error is understood when the terms of the parties'
contract are considered. Pursuant thereto, Cape-France was the subdivision applicant and
responsible for obtaining subdivision approval, an effort spearheaded by its engineer,
Lowell Springer. It was Cape-France's obligation to drill the test well as a condition of
subdivision approval. Thereafter, it was the specific contractual obligation of buyer Peed-
Moore to provide water for the property's future development plans, and to address the
long-term water supply issue. As such, it was Peed-Moore who was required under the
contract to complete the future task which bore the potential "liability of an unquantifiable
nature" about which the Department had warned.
¶57 Perhaps realizing this, Cape-France argued that Peed-Moore failed to indemnify them
against any future pollution that Peed-Moore may cause on the property. While such
indemnifications may not be unusual, Cape-France, experienced developers, chose not to
ask for one at the time of their bargain in June 1994. Nor did they ask for an
indemnification at the time they signed the Extension Agreement, approximately two
months after consummation of the buy-sell agreement, even though at all times they had
actual knowledge of the advancing plume. Furthermore, under the parties' agreement,
Cape-France agreed to assume the risk of loss until closing. If the facts, now unknown,
would establish that Cape-France had sufficient knowledge of the contamination potential
and then assumed such risks, the contractual provision would bar Cape-France's demand
for indemnification, and its failure to perform would not be excused for this reason.
¶58 The Department's letter did intimate that Cape-France could be held responsible if
contamination resulted from faulty well construction or testing and that advance treatment
would be required if contaminated groundwater were encountered. However, the record is
unclear in several important respects: (1) the likelihood that test wells could be safely
drilled; (2) whether advance treatment of contaminated groundwater would be required as
a condition of subdivision and who would be responsible; and (3) the actual cost of either
the advance treatment of contaminated water or the clean up of contamination resulting
from a faulty well. Indeed, both parties hold up the record to argue contrary positions
regarding these factual matters. Thus, there are questions of material fact as to Cape-
France's liability- and, therefore, the impracticability of performance-which should have
precluded summary judgment.
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¶59 Finally, I would also hold the District Court erred in granting summary judgment on
the grounds of mutual mistake, for largely the same reasons. Regarding the defense of
mutual mistake, we have stated the following:
A mutual mistake occurs when the contracting parties share a common
misconception about a vital fact upon which they based their bargain. Mitchell v.
Boyer (1989), 237 Mont. 434, 437, 774 P.2d 384, 386. Parties cannot avoid a
contract because of mutual mistake, however, if they bear the risk of a mistake.
Restatement (Second) of Contracts §152 (1979). Parties bear the risk of a mistake
when they know they have limited knowledge regarding the facts to which the
mistake relates at the time the contract is made and treat their limited knowledge as
sufficient. Restatement (Second) of Contracts §154(b) (1979).
Wray v. State Compensation Insurance Fund (1994), 266 Mont. 219, 225, 879 P.2d 725, 728. As
I noted above, there are questions of material fact regarding whether and to what extent the parties were
aware of the risks of potential groundwater contamination and whether they assumed those risks. For the
reasons expressed herein, summary judgment is inappropriate, and I would remand this case for further
proceedings.
CONSTITUTIONAL ISSUES
¶60 I join in the concerns expressed by Chief Justice Gray and Justice Leaphart regarding
the majority's application of constitutional principles herein. This case can be resolved on
the contract issues alone, consistent with this Court's long tradition of declining to address
constitutional issues where it is unnecessary. Further, while I do not dissent from the
principles of environmental protection embodied in the Constitution, I do dissent from the
majority's sweeping application of those principles in this case.
¶61 First, the majority's discussion of Article II, Section 3, of the Montana Constitution is
incomplete. Article II, Section 3, states:
Inalienable rights. All persons are born free and have certain inalienable rights.
They include the right to a clean and healthful environment and the rights of
pursuing life's basic necessities, enjoying and defending their lives and liberties,
acquiring, possessing and protecting property, and seeking their safety, health and
happiness in all lawful ways. In enjoying these rights, all persons recognize
corresponding responsibilities. [Emphasis added.]
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While the majority discusses the inalienable right to a clean and healthful environment
contained in Article II, Section 3, the Court fails to even mention, in a case about
acquiring property, the co-existent inalienable right of our people contained in Article II,
Section 3, to acquire, possess and protect property. The majority omits any discussion of
the interaction or balancing, if any, of these rights, which must occur when they are
simultaneously at issue.
¶62 Second, the majority today holds that when the anticipated performance of a private,
real property contract may potentially impact the environment, the contract's purpose is
unlawful, and rescission is the appropriate remedy. Moreover, the majority has unilaterally
assessed the potential for environmental contamination, despite the involvement of the
regulatory bodies responsible for that determination, and on a record that leaves much in
doubt. In the present case, DEQ determined that a test well should be drilled in accordance
with established state and federal guidelines to determine whether contamination existed.
On the basis of a letter suggesting that liability could be incurred for future contamination,
the majority has determined that the DEQ's procedures for testing water pose an
unconstitutional threat to the environment.
¶63 The decision leaves important questions unanswered. How certain must the potential
be before the contract is deemed to have an unlawful purpose? How is a contract's
potential adverse impact on the environment to be measured? How significant must that
potential impact be? As the record discloses in this case, it has not been established that
the plume has actually moved onto the seller's property. A misapprehension of fact-that a
test well would exacerbate the existing contamination problem-has barred the test
necessary to determine the plume's present location. Is a notice from the State that there
may be a pollution issue affecting a parcel of property sufficient enough to prohibit use of
the property? While future decisions of the Court may eventually resolve such questions,
far too much is today left in doubt.
¶64 The environmental provisions of the Constitution may very well apply in this case,
and may prohibit development of the proposed subdivision. However, on a record which
leaves the question of potential environmental damage unsettled, the applicability of the
constitutional protections cannot properly be determined. I would order a remand of this
case, and after the material facts are established, the contract and constitutional principles
at issue here could be properly adjudicated.
/S/ JIM RICE
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Chief Justice Karla M. Gray, dissenting.
¶65 I respectfully dissent from the result the Court reaches in this case, from its analysis
and application of the law regarding impossibility of performance, and from the inclusion
in its opinion of constitutional issues not before us. My views overlap to some extent with
those expressed by Justice Rice with regard to whether summary judgment was properly
granted to Cape-France. They also overlap to some extent with Justice Leaphart's views on
the inclusion of the constitutional issues in the Court's opinion. I write separately to clarify
the basis for my inability to join the Court's opinion in either respect.
¶66 To begin at the beginning, I agree with the Court that our review of a district court's
summary judgment is de novo and that we apply the same Rule 56, M.R.Civ.P., criteria as
the district court. I also agree that it sometimes is appropriate in a case involving cross-
motions for summary judgment to confine our review to the trial court's conclusions of
law, on the theory that cross-motions constitute agreement that the material facts are
undisputed. On the other hand, "the fact that both parties have moved for summary
judgment does not establish, in and of itself, the absence of genuine issues of material
fact." Montana Metal Buildings, Inc. v. Shapiro (1997), 283 Mont. 471, 477, 942 P.2d
694, 698 (citation omitted). In the present case, it is my view that the material facts in this
case are not undisputed and that the Court fails to perform an appropriate de novo review
under Rule 56.
¶67 Rule 56 requires the trial court, and this Court, to render summary judgment "if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." In this case, the District
Court's order granting summary judgment to Cape-France states that the court was fully
advised "[f]rom its review and consideration of the briefs and oral argument." While this
statement may be mere boilerplate and not an admission by the trial court that it did not
actually review the record before it, the remainder of its order does not necessarily support
such an interpretation of the court's review. Indeed, the trial court merely stated--perhaps
on the same basis as the related statement in this Court's opinion that the facts are
undisputed--that "the parties agree that there are no genuine issues of material fact." In
actual fact, however, Peed and Moore contended in their District Court brief opposing
Cape-France's motion for summary judgment that Cape-France was "unable to
demonstrate the absence of genuine issues of material fact in support of its Motion for
Summary Judgment." They were correct in that court and they are correct in this Court, as
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Justice Rice details.
¶68 In this regard, I note only a few examples of error in the District Court's order. First,
the District Court states--and this Court erroneously follows a bad lead--that the DEQ
informed Cape-France in a December 21, 1995, letter that the property at issue "was
located within a groundwater contamination site." The problem with this purported
statement of fact is that nothing in the DEQ letter says the property was within a
contamination site; the letter merely advised that the contamination "appears to be
extending north but the extent of the contamination is unknown." Indeed, this Court
implicitly corrects its erroneous statement later in the opinion when it observes that the
DEQ letter advised that the proposed subdivision "could be" in an area of groundwater
contamination.
¶69 As another example, the District Court's order relates the parties' competing
arguments about when knowledge of the possibility of pollution near the subject property
surfaced. Cape-France argued that new and significant facts, including that the plume
passed into the area, became known only after the execution of the Buy-Sell Agreement.
Peed and Moore argued, on the other hand, that Cape-France was aware of the potential
pollution near the subject property when the agreement was executed. Immediately
following the parties' respective contentions, the District Court states that it is undisputed
that Cape-France was aware that the plume was moving northwesterly towards the subject
property. Mysteriously, it then goes on to state as a matter of fact that "[t]he contamination
was new, unexpected, [and] unknown. . . ." These are inherently contradictory statements
about a material factual issue.
¶70 Finally, in this regard, both the District Court and this Court make much of the
following facts: that DEQ imposed a requirement that a test well be drilled after the
agreement was executed, that Cape-France was "unwilling" to drill the test well, and that
Peed and Moore were unwilling to provide Cape-France with a satisfactory indemnity
agreement. The "materiality" of these facts is not at all clear to me and, to the extent the
facts are material, the gloss placed on them by both courts is totally--and inappropriately--
set forth in Cape-France's favor. Both courts overlook the fact that the required test well
was merely that, as Justice Rice points out. Both courts also overlook the fact that the Buy-
Sell Agreement places responsibility for getting the subject property through subdivision
requirements and approval on Cape-France, and that the test well was merely one
remaining item--arguably capable of performance and certainly not unlawful--in that
process. I simply cannot join the Court in speculating that contamination either does or
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will exist and that, if so, it "could" expose Cape-France to substantial financial liability
and, on the basis of such speculation, concluding that Cape-France's obligation to perform
according to its contract is excused.
¶71 I raise these matters only to highlight the importance--and the Rule 56 requirement--of
scrutinizing the facts of record in summary judgment proceedings to determine whether
material factual issues remain for trial. For these and other reasons, I would conclude that
genuine issues of material fact exist in the present case which precluded summary
judgment in favor of Cape-France.
¶72 More importantly, however, I disagree with this Court's discussion and application of
the law of impossibility of performance. The Court begins by correctly stating Montana
law on impossibility as set forth in our most recent cases on the subject: "[I]mpossibility
of performance is a strict standard that can only be maintained where the circumstances
truly dictate impossibility. The general rule is that, where a party to a contract obligates
himself to a legal and possible performance, he must perform in accordance with the
contract terms." Barrett, decided in 1980, and 360 Ranch, decided in 1996, are nearly
unequivocal in this regard and rightly so, since § 28-2-603, MCA, also requires that a
contract be voided only where "wholly impossible of performance." Moreover, 360 Ranch
goes on to set out the few kinds of contract cases in which a district court properly could
grant summary judgment on impossibility of performance. See 360 Ranch, 278 Mont. at
493, 926 P.2d at 263. Those examples do not include the circumstances presently before
us. Rather, this is a case where, as we said in 360 Ranch, "whether performance of a
contract was impossible will be a question of fact, and summary judgment will not be
appropriate." 360 Ranch, 278 Mont. at 493, 926 P.2d at 263. As we did in that case, so
must we in this case conclude, based on the record before us, that the question of
impossibility of performance presents a genuine issue of material fact.
¶73 Instead of following either the substantive law or the approach contained in 360
Ranch, however, the Court inexplicably heads off in an entirely different direction, citing
to our 1977 Smith decision for the proposition that impossibility of performance
encompasses impracticability because of extreme and unreasonable difficulty, expense,
injury or loss involved. Smith predated both Barrett and 360 Ranch, and the referenced
proposition has never since been repeated by this Court. From an outdated, one-shot
opinion, the Court then goes off into every available jurisdiction and source to support its
impracticability approach. My problem with the Court's approach is that it essentially
ignores controlling Montana case law on impossibility of performance and totally ignores
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§ 28-2-603, MCA. I cannot agree. I would remand to the District Court for further
proceedings and, ultimately, for the application of existing Montana law on impossibility
of performance.
¶74 Finally, with regard to the constitutional issues discussed in the Court's opinion, I
agree with Justice Leaphart that we follow the long-standing and important principle that
courts should avoid constitutional issues wherever possible. However, I do not agree that
principle is applicable here for one simple reason: no constitutional issue was presented to
the District Court and, indeed, appellants did not present such an issue to this Court.
Consequently, I strenuously dissent from the Court's insertion--and resolution, on its own
and without full briefing--of a nonexistent constitutional issue into this case.
¶75 This case was tried and appealed on issues of impracticability/impossibility of
performance and specific performance. Whatever our respective views on those matters,
the Court resolves the appeal on the basis of impossibility of performance. Having so
resolved the case, however, the Court then improperly inserts a discussion of a critically
important constitutional right in Montana, the development of which through case law
actually presenting the issue, is in its infancy. To that extent, the discussion is dicta in its
entirety and, as a result, not controlling precedent. The problem is that dicta takes on a life
of its own. The bigger problem is that the Montana constitutional rights relating to the
environment are hugely important and impactful to the citizens of Montana and should not
be dallied with by this Court in the absence of issues being raised in the District Court and
fully briefed in this Court.
¶76 For the reasons stated above, I dissent from the Court's opinion on the issue actually
before us and strenuously dissent from its inappropriate insertion of the "clean and
healthful" discussion, which will unnecessarily fan the flames of controversy in Montana.
/S/ KARLA M. GRAY
1. Peed is now deceased and being represented by her estate.
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