NO. 94-070
IN THE SUPREME COURT OF THE STATE OF MONTANA
1994
GOODMAN REALTY, INC., a Montana
corporation, GERRY L. SMITH and
KATHY A. SMITH, husband and wife,
Plaintiffs and Appellants,
v. OCT 22 19%
LAURA M. MONSON,
Defendant and Respondent.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Ted 0. Lympus, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Stephen C. Berg, Warden, Christiansen,
Johnson & Berg, Kalispell, Montana
For Respondent:
William E. Astle, Astle & Astle,
Kalispell, Montana
Submitted on Briefs: September 22, 1994
Decided: October 27, 1994'
Filed:
Justice William E. Hunt, Sr., delivered the opinion of the Court.
Goodman Realty, Inc., and Gerry and Kathy Smith jointly filed
a complaint in the District Court for the Eleventh Judicial
District in Flathead County requesting that Laura Monson execute a
document clarifying the Smiths' rights regarding a drainfield on
Monson's property which services the Smiths' property.
Alternatively, if Monson refused to execute the requested document,
plaintiffs sought a decree adjudging the location of the drainfield
on the Monson property and declaring the existence of an easement
for use of the drainfield appurtenant to the Smiths' property.
Pursuant to Mont. R. Civ. P. 12(b), Monson filed separate motions
to dismiss as to Goodman Realty and the Smiths. After considering
the briefs of parties, the District Court dismissed with prejudice
the claims of both Goodman Realty and the Smiths and entered
orders. Goodman Realty and the Smiths appeal from those orders.
We affirm the District Court.
The parties raise the following issues on appeal:
1. Does the complaint set forth sufficient facts to support
a claim for reformation of a written instrument?
2. Did the Smiths acquiesce in the warranty deed?
3. Does Goodman Realty's pecuniary interest in the outcome
of the Smiths' claim against Monson create a basis upon which
Goodman Realty may bring a claim against Monson?
Because this appeal arose from the District Court's granting
of a motion to dismiss, the record in this case consists of the
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complaint and the exhibits attached to it, which set forth the
following facts:
Prior to April 1986, Jean Peterson owned an undivided parcel
of land in Flathead County. In April 1986, Peterson divided the
parcel into two separate tracts, Flathead County Assessor's Tract
4D and Tract 4DA. Tract 4D lies immediately east of Tract 4DA and
adjoins the easterly property line of Tract 4DA.
In November 1988, Peterson's successor in interest, Beneficial
Montana, Inc., doing business as Beneficial Mortgage Co.
(Beneficial), conveyed Tract 4DA to Laura Monson. At the time of
the conveyance to Monson, a drainfield servicing Tract 4D
physically existed on Tract 4DA. The location of the drainfield is
depicted on Flathead County Certificate of Survey No. 8549, dated
April 21, 1986. The certificate of survey indicates that a
"drainfield easement appurtenant to Tract 4D" existed on Tract 4DA.
However, the deed of conveyance from Beneficial to Monson merely
refers to the certificate of survey and fails to specifically
describe any easement over Tract 4DA.
On May 13, :L993, the Smiths purchased Tract 4D by warranty
deed from Paul and Phyllis Jenkins. Goodman Realty facilitated the
Smiths' purchase. Prior to the sale, Goodman Realty and the Smiths
agreed that Goodman Realty would post a $10,000 indemnity sum with
Citizen's Title and Escrow Company to indemnify the Smiths in the
event that Tract 4DA was not subject to a drainfield easement for
the benefit of Tract 4D.
In reviewing a motion to dismiss, we construe the complaint in
the light most favorable to the plaintiffs and take the allegations
of the complaint as true. King v. State (1993), 259 Mont. 393,
395-96, 856 P.2d 954, 955 (citing Willson v. Taylor (1981), 194
Mont. 123, 126, 634 P.2d 1180, 1182).
When a case is dismissed pursuant to a pretrial motion
and the credibility of witnesses is not an issue, the
scope of review is broad and this Court may make its own
examination of the entire case and make a determination
in accordance with its findings.
Kinq, 856 P.2d at 955. The dismissal will be affirmed only if this
Court finds that the plaintiffs are not entitled to relief under
any set of facts which could be proved in support of the claim.
w, 856 P.2d at 955 (citing Proto v. Missoula County (1988), 230
Mont. 351, 352-53, 749 P.2d 1094, 1095-96).
ISSUE 1
Does the complaint set forth sufficient facts to support a
claim for reformation of a written instrument?
The warranty deed conveying Tract 4D from the Jenkinses to the
Smiths contains the following description:
SUDJECT TO Drainfield easement over insured property
[Tract 4D] for the benefit of Assessors Tract No. 4DA, as
disclosed by document recorded July 21, 1988 as Dot. No.
88-203-08470, records of Flathead County, Montana.
The Smiths claim that the described easement is backwards, and that
in fact a drainfield easement runs over Tract 4DA for the benefit
of Tract 4D. To rectify the alleged error, the Smiths seek the
equitable remedy of reformation.
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The mistake of the scrivener or draftsperson who prepared the
instrument alone is insufficient grounds for reformation.
66 Am. Jur. 2d ReformationOfInSttwnents $j 12 (1973). The proper grounds
for reformation are set forth in § 28-2-1611, MCA:
When written contract may be revised by court. When,
through fraud or a mutual mistake of the parties or a
mistake of one party while the other at the time knew or
suspected, a written contract does not truly express the
intention of the parties, it may be revised on the
application of a party aggrieved so as to express that
intention, so far as it can be done without prejudice to
rights acquired by third persons in good faith and for
value.
Absent a satisfactory showing of fraud, mutual mistake, or
unilateral mistak:e, there is no basis for a court in equity to
reform a written instrument. Plaintiffs do not allege fraud in the
instant case. Therefore, we address only the issues of mutual and
unilateral mistake.
Reformation of a written instrument for mutual mistake
presupposes a prior complete and mutual understanding between the
parties to the instrument. McSweyn v. Musselshell County (1981),
193 Mont. 525, 531, 632 P.2d 1095, 1098. Such a meeting of the
minds is necessary because it serves as the standard from which the
instrument may be reformed. Sullivan v. Marsh (1950), 124 Mont.
415, 422, 225 P.2d 868, 872. Mutual mistake, however, is not
applicable where the plaintiff knew of the mistake. Schillinger v.
Huber (1958), 133 Mont. 80, 85, 320 P.2d 346, 348.
Likewise, a plaintiff who knows of the mistake prior to
executing the written instrument cannot sustain a claim for
reformation based on unilateral mistake. Schillinser, 320 P.2d at
5
348. In Story v. City of Bozeman (1993), 259 Mont. 207, 223, 856
P.2d 202, 212, this Court explained that § 28-2-1611, MCA,
specifies unilateral mistake as "the mistake of one party while the
other at the time knew or suspected." Additionally,
[i]n interpreting 5 17-901, R.C.M. (1947), (the identical
predecessor to 5 28-2-1611, MCA), we stated that the
right to reform a contract for unilateral mistake does
not lie for the party who knew of the mistake in the
contract; rather, it belongs to the aggrieved party who
is laboring under a mistake known or suspected by the
other party.
Story, 856 P.2d at 212 (citing Schillinser, 320 P.2d at 348). In
Storv, the City of Bozeman asserted that a typographical error in
its contract with Mark Story Construction provided a sufficient
basis for its reformation claim. Instead of listing the unit of
measurement for the necessary materials in I'CY" (cubic yards), the
contract erroneously listed the unit of measurement in "CF" (cubic
feet). Prior to executing the contract, however, the City of
Bozeman had actual knowledge of the typographical error and failed
to remedy it. We held that
[a]s such, tlhe City cannot claim that it was laboring
under a mistake that the contract read "CY." Pursuant to
Schillinger, the party who knows of the mistake cannot seek
to reform the contract based on unilateral mistake.
Storv, 320 P.2d at 212.
The pertinent portions of the complaint in the instant case
allege as follows:
VI
Through drafting errors, instruments of records
subsequent to April, 1986 erroneously described the
drainfield easement as being located on the Smith
property (Assessor Tract 4D) for the benefit of the
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Monson property (Assessor Tract 4DA) rather than on the
Monson property, where the drainfield is actually
located, for the benefit of the Smith property. The deed
by which Smith took title, Exhibit A hereto, werwetuates
this error . . . .
VII
As reflected on Exhibit A [Jenkins-Smith warranty deed]
hereto, Smith purchased the Smith property by warranty
deed dated May 13, 1993. Prior to doing so, Smith
understood the location of the drainfield serving the
Smith property to be on the Monson property and that the
Monson property was subject to an easement for that
purpose, which easement was appurtenant to the Smith
property. smith further understood that such belief was
not supported bv various instruments of record includinq
the deed by which Smith acquired title . . . .
(Emphasis added).
The complaint clearly demonstrates that the Smiths had actual
knowledge of the location and operation of the drainfield on Tract
4DA. Furthermore, the complaint clearly demonstrates that before
purchasing Tract 4D the Smiths had actual knowledge that the
warranty deed described the alleged easement contrary to their
understanding. Therefore, we conclude that the Smiths failed to
set forth sufficient facts to support a claim for reformation.
ISSUE 2
Did the Smiths acquiesce in the warranty deed?
This Court reaffirms the longstanding rule of law that a
person who is not acting under mistake or fraud and who acquiesces
in an error loses his right to object to the error. Schillinqer,
320 P.2d at 349; 5 l-3-207, MCA. In Schillinqer, buyer and sellers
entered into a land sale contract in which the sellers reserved
6-l/4 percent of the oil and gas rights and royalties on the land
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to be conveyed to buyer. Buyer and sellers later met to transfer
title by deed: however, no one present had a copy of the land sale
contract. Sellers stated to the scrivener preparing the deed that
they reserved all but 6-l/4 percent (or 93-3/4 percent) of the oil
and gas rights and royalties. Buyer testified that he knew at that
time that the terms of the deed varied from the land sale contract.
Despite his knowledge of the variance, buyer testified that he
voluntarily accepted and executed the deed and paid the balance of
the purchase price. Seven years later, buyer found a copy of the
land sale contract and brought suit to reform the deed after
sellers refused to correct it. This Court held that, because the
buyer accepted the deed with knowledge of the mistake, the right of
reformation was destroyed. Schillinser, 320 P.2d at 347, 350.
In the instant case, the District Court concluded that the
Smiths are not entitled to reformation because they received the
deed to Tract 4D with actual knowledge that, although the
drainfield was physically located on Tract 4DA, the alleged
easement for use of the drainfield was erroneously recorded against
Tract 4D. We agree.
In their brief on appeal, the Smiths argue that
[w]hen Monson refused to execute a document clarifying
who had an easement on whose property [I, the Smiths had
to make a decision. The question was whether to go
forward, purchase the property from Jenkins and resolve
the easement matter later with Monson or the District
Court, or refuse to purchase the property. They chose
the former alternative . . . .
The Smiths, therefore, voluntarily accepted the warranty deed from
the Jenkinses, knowing that its terms expressly failed to conform
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with their understanding of their rights. We conclude that, in
doing so, the Smiths acquiesced in the warranty deed as executed.
The Smiths argue that the brief length of time between the
execution of the deed from the Jenkinses and the filing of the
complaint in this case is relevant to show that they did not
acquiesce in the warranty deed. However, the length of time
between notice of the mistake and application for redress is
relevant only to implied acquiescence. Schillinser, 320 P.2d at
349-50. The Smiths' acquiescence here is direct, not implied.
Like the plaintiff in Schillinqer, the Smiths knew of the mistake
at the time of delivery of the deed, yet voluntarily executed the
agreement despite that knowledge. The Smiths' reasons for doing so
are not relevant. This Court, in Schillinaer, stated:
Regardless of [the purchaser's] reasons for doing so, by
paying the balance of the purchase price after he knew of
the mistake in the deed, and when he was not acting under
fraud he can only be held to have acquiesced in the
mistake.
Schillinuer, 320 P.2d at 350.
We hold that the Smiths acquiesced in the warranty deed.
ISSUE 3
Does Goodman Realty's pecuniary interest in the outcome of the
Smiths' claim against Monson create a basis upon which Goodman
Realty may bring a claim against Monson?
Plaintiff Goodman Realty placed its $10,000 real estate
commission for the sale of Tract 4D in escrow to indemnify the
Smiths in the event that a drainfield easement over Tract 4DA for
the benefit of Tract 4D did not exist. Because the release of the
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$10,000 depends on the resolution of the dispute between the Smiths
and Monson, Goodman Realty argues that its pecuniary interest in
the outcome is sufficient to create a cause of action between
Goodman Realty and Monson. Goodman Realty argues that
[i]n an action to reform a deed, all parties claiming an
interest to the land or any part thereof purportedly
conveyed by the instrument sought to be reformed, and
whose interests will be affected by the reformation of
the instrument, are necessary parties to the action.
66 Am. Jur. 2d Rgfonnation of Insfnments 5 100 (1973). While this may
be a correct statement of the law, Goodman Realty alleges no
interest in the property of either the Smiths or Monson. Its only
interest is in the $10,000 indemnification sum which is wholly
unrelated to the property interests at issue. Further, the
complaint does not allege that Monson breached any duty owed to
Goodman Realty. 1:n fact, Goodman Realty admits that Monson owes it
no legal duty. Goodman Realty clearly does not state a cause of
action against Monson, and the District Court correctly dismissed
its claim.
We affirm the orders of the District Court dismissing with
prejudice the claims of the Smiths and Goodman Realty.
Affirmed.
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We concur:
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October 27, 1994
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:
Stephen C. Berg
WARDEN, CHRISTIANSEN, JOHNSON & BERG
P. 0. Box 3038
Kalispell, MT 59903-3038
William E. Astle
ASTLE & ASTLE
705 Main Street
Kalispell, MT 59901
ED SMITH
CLERK OF THE SUPREME COURT