1998 -NMCA- 129, Twin Forks Ranch, Inc. v. Brooks

• Decision Date: 17 June 1998
• Docket Number: No. 18092,18092
• Citation: 1998 NMCA 129,964 P.2d 838,125 N.M. 674
• Parties: , 1998 -NMCA- 129 TWIN FORKS RANCH, INC., a New Mexico Corporation, and Twin Forks Domestic Water Consumers Association, Plaintiffs-Appellees, v. Robert B. BROOKS and Janice K. Brooks, his wife; Benjamin F. Brooks and Rosemary Brooks, his wife, Defendants-Appellants.
• Court: Court of Appeals of New Mexico

Page 838

964 P.2d 838

125 N.M. 674, 1998 -NMCA- 129

TWIN FORKS RANCH, INC., a New Mexico Corporation, and Twin Forks Domestic Water Consumers Association Plaintiffs-Appellees, v. Robert B. BROOKS and Janice K. Brooks, his wife; Benjamin F. Brooks and Rosemary Brooks, his wife Defendants-Appellants.

No. 18092.

Court of Appeals of New Mexico.

June 17, 1998.

Certiorari Denied Sept. 9, 1998.

Jefferson R. Rhodes, Burroughs & Rhodes, Alamogordo, Anthony F. Avallone, Law Systems of Las Cruces, P.A., Las Cruces, for Plaintiffs-Appellees.

A.J. Olsen, Henninghausen, Olsen & Stevens, LLP, Roswell, for Defendants-Appellants.

OPINION

FLORES, Judge.

¶1 This is a dispute over the ownership of water rights appurtenant to a fifteen acre tract of land sold to Robert B. Brooks and his family (the Brooks) by Twin Forks Ranch, Inc. (Twin Forks). The trial court found and concluded that a mutual mistake occurred in the drafting of the real estate contracts and deeds arising out of the land sale, such that the writings did not properly convey six water taps into the community water system, nor properly reserve appurtenant water rights to Twin Forks. Accordingly, the trial court reformed the writings to include the conveyance of water taps and the reservation of water rights. The Brooks argue that the evidence of mutual mistake, as it related to the appurtenant water rights, was not substantial, and thus, the trial court's reformation of the writings was in error. Because we agree with the Brooks that the evidence to support a finding of mutual mistake concerning the appurtenant water rights was not substantial, and that reformation in this regard was improper, we need not address the Brooks' other claims. We affirm in part, reverse in part, and remand for further proceedings in accordance with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

¶2 In late September or early October 1988, Steve Wimsatt (Wimsatt), vice president of Twin Forks, approached Robert Brooks with an offer to sell a fifteen acre lot owned by Twin Forks that was adjacent to Robert Brooks' property. This fifteen acre lot, though owned by Twin Forks, was not part of the Twin Forks subdivision. Robert Brooks, on behalf of his wife, Janice K. Brooks, and his brother, Benjamin F. Brooks, and Benjamin's wife, Rosemary Brooks, negotiated briefly with Wimsatt for the property. Wimsatt and Robert Brooks orally agreed that the fifteen acres would be sold for $50,000. They also agreed that the sale would include six water taps into the community's domestic water system, as well as an easement reserving access to the Slough Canyon Spring and community water tank to Twin Forks. This was the complete extent of the parties' negotiations. Neither party ever mentioned appurtenant water rights during their negotiations.

¶3 Wimsatt, a real estate broker licensed in New Mexico, drafted the two contracts himself. Each contract conveyed seven and one-half acres. On October 24, 1988, Twin Forks and Robert and Janice Brooks signed one contract for the sale of seven and one-half acres, and Twin Forks and Benjamin and Rosemary Brooks signed a second contract for the sale of the remaining seven and one-half acres. The Brooks received warranty deeds from Twin Forks when they paid the purchase price, but the deeds did not include the water taps that had been contracted for by the parties.

¶4 At the time of negotiating the sale of the land, neither the Brooks nor Twin Forks knew whether the fifteen acres had appurtenant water rights. However, Wimsatt knew that unless he reserved the appurtenances in the writings, they would pass with the sale of the land. Wimsatt had a general policy of not discussing appurtenant water rights with potential real estate buyers, but of later including a reservation in the writings. Here, consistent with his policy, he did not discuss water rights with the Brooks. However, Wimsatt also omitted the reservation from the writings. Thus, nothing in this situation would have alerted the Brooks that Twin Forks intended to reserve the appurtenant water rights.

¶5 Prior to and at the time of this sale, Twin Forks owned and operated the community water system for those who lived in the Twin Forks Ranch subdivision. The Slough Canyon Spring, which is located on public land outside the subdivision, is a significant source of water for the water system that supplies domestic water to homes in the subdivision. After selling the fifteen acres to the Brooks, Twin Forks came under pressure from the State Engineer to file an application for a change of purpose from agricultural to domestic use of the water from Slough Canyon Spring. No longer wishing to operate the community water system, Twin Forks transferred the assets of the community water system, including water lines, storage tanks, and rights to water from Slough Canyon Spring, to the newly formed Twin Forks Mutual Domestic Water Consumers Association (the Association), which then began supplying water for the domestic use of community members. In approximately 1990, the Brooks began claiming water from the Slough Canyon Spring. In preparation for opening a Christmas tree farm on the fifteen acres, the Brooks contacted the State Engineer to determine what irrigation rights attached to the acreage. Based on evidence of terracing, the State Engineer determined that the land had been used for agriculture, and that appurtenant water rights whose source is the Slough Canyon Spring may attach to the property.

¶6 Shortly after the Brooks began claiming water from Slough Canyon Spring, Twin Forks and the Association brought suit to rescind or reform the contracts and deeds to include a reservation of appurtenant water rights. The trial court granted summary judgment in favor of the Brooks, finding that the water rights appurtenant to the land passed as a matter of law because Twin Forks did not reserve those rights. Twin Forks and the Association appealed. In Twin Forks Ranch, Inc. v. Brooks, 120 N.M. 832, 835, 907 P.2d 1013, 1016 (Ct.App.1995), this Court held that Twin Forks and the Association were not entitled to rescind the contracts based on unilateral mistake, and that the Association could not maintain actions for estoppel, constructive trust, or negative easement. See id. at 837, 907 P.2d at 1018. However, this Court reversed the grant of summary judgment as it related to the doctrine of mutual mistake, holding that there were genuine issues of material fact concerning whether a mutual mistake occurred that would warrant reformation of the contract. See id. at 836-37, 907 P.2d at 1017-18. On remand, the trial court found that a mutual mistake occurred and was grounds for reformation. The trial court reformed the contracts and deeds to include the transfer of six water taps and the reservation of all appurtenant water rights. The Brooks appeal.

II. DISCUSSION

¶7 The Brooks argue that the water rights appurtenant to the fifteen acre tract that they purchased passed by operation of law with the conveyance because Twin Forks failed to reserve those rights. See NMSA 1978, § 47-1-34 (1947) ("In a conveyance or mortgage of real estate all rights, easements, privileges and appurtenances belonging to the granted estate shall be included in the conveyance, unless the contrary shall be stated in the deed, and it shall be unnecessary to enumerate or mention them generally or specifically."). Here, the parties do not dispute that the real estate contracts and warranty deeds fail to contain such a reservation. The parties, however, do dispute whether they ever agreed to a reservation of appurtenant water rights, and thus, whether the trial court properly reformed the contracts and deeds to include a reservation.

A. Standard of Review

¶8 The Brooks attack the reformation on the grounds that the evidence of mutual mistake was not substantial. " 'The substantial evidence or clearly erroneous standard of appellate review ... is not applied identically in all instances: the appellate standard of review parallels the trial court burden of proof.' " In re R.W ., 108 N.M. 332, 336, 772 P.2d 366, 370 (Ct.App.1989) (quoting In re Bush, 113 Idaho 873, 749 P.2d 492, 495 (1988)). The party seeking to reform a writing must prove by clear and convincing evidence that a mutual mistake occurred. See Butler v. Butler, 80 N.M. 36, 38, 450 P.2d 922, 924 (1969); Wright v. Brem, 81 N.M. 410, 411, 467 P.2d 736, 737 (Ct.App.1970). "For evidence to be clear and convincing, it must instantly tilt the scales in the affirmative when weighed against the evidence in opposition and the fact finder's mind is left with an abiding conviction that the evidence is true." In re Sedillo, 84 N.M. 10, 12, 498 P.2d 1353, 1355 (1972).

¶9 Although we will not reweigh the evidence, see Bassett v. Bassett, 110 N.M. 559, 563, 798 P.2d 160, 164 (1990), and will view the evidence in the light most favorable to the outcome below, see In re R.W., 108 N.M. at 335, 772 P.2d at 369, we will review the evidence to determine whether a reasonable fact finder could find that it clearly and convincingly supports the trial court's findings of fact. Here, we must reverse the district court because there is not sufficient evidence for a fact finder to be left with an abiding conviction that there was a mutual mistake.

B. Mutual Mistake and Reformation

¶10 Mutual mistake is grounds for reformation of a written agreement. See Kimberly, Inc. v. Hays, 88 N.M. 140, 143-44, 537 P.2d 1402, 1405-06 (1975); Cleveland v. Bateman, 21 N.M. 675, 684, 158 P. 648, 650 (1916). According to the Restatement (Second) of Contracts § 155 (1981) [hereinafter Restatement]:

Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third part...