O'Connor v. Harger Const., Inc.

• Decision Date: 09 May 2008
• Docket Number: No. 33685.,33685.
• Citation: 145 Idaho 904,188 P.3d 846
• Parties: Tamara L. O'CONNOR, Plaintiff-Appellant, v. HARGER CONSTRUCTION, INC., an Idaho corporation, Defendant-Respondent.
• Court: Idaho Supreme Court

188 P.3d 846

145 Idaho 904

Tamara L. O'CONNOR, Plaintiff-Appellant, v. HARGER CONSTRUCTION, INC., an Idaho corporation, Defendant-Respondent.

No. 33685.

Supreme Court of Idaho, Boise, March 2008 Term.

May 9, 2008.

Rehearing Dismissed July 17, 2008.

Layman, Layman & Robinson, PLLP, Coeur d'Alene, for appellant. Arthur M. Bistline argued.

Dean & Kolts, Coeur d'Alene, for respondent. Charles R. Dean, Jr. argued.

W. JONES, Justice.

This action arises out of the purchase of real property on Lake Coeur d'Alene, Idaho. Tamara O'Connor (O'Connor) filed an action again Harger Construction, Inc. (Harger), alleging breach of contract and seeking damages, or in the alternative, specific performance or restitution for the return of her deposit. The district court, Honorable Charles Hosack presiding, found that a mutual mistake of fact existed between O'Connor and Harger and that O'Connor had not met the burden of proving that Harger had breached the contract. On motion for reconsideration, filed by O'Connor, the trial court expressly ordered the contract rescinded and O'Connor's deposit returned less an amount for construction materials in her possession. O'Connor appeals to this Court.

FACTUAL AND PROCEDURAL BACKGROUND

Harger's business consists of purchasing lots with the intent of building a home on the lot and subsequently selling the lot as residential real estate. Harger typically finds a buyer for the home prior to building. Although the homes are in a sense custom, they also have general appeal so that Harger may find another buyer.

O'Connor and Harger entered into a Pre-Sold New Construction Real Estate Purchase and Sale Agreement and Receipt for Earnest Money on February 2, 2004 (the Purchase Agreement). At that time, O'Connor made a deposit of $500 towards the purchase of a custom-built home. The Purchase Agreement was contingent on approval of final construction plans and expressly did not transfer title of the land to O'Connor prior to closing. O'Connor and Harger entered into a contract establishing pricing for the construction of the home (Pricing Contract) on June 16, 2004. The Pricing Contract established a non-refundable deposit (the Deposit) of $40,000 and a final home price of $585,000. The Pricing Contract dealt primarily with construction costs, worker's compensation, landscaping and deposits corresponding with filing of building permits. It expressly states that Harger is the owner of the lot and that O'Connor and Harger are working to construct a home on the lot that is mutually acceptable to both parties. The $585,000 cost for construction was itemized, accounting for building material costs, realtor and closing fees, building fees and the cost of the lot. The price of the lot in the Pricing Contract was listed at $225,000. The Pricing Contract established that the home would be finished six months from issuance of the building permits, weather and site permitting. O'Connor paid the Deposit on July 22, 2004.

The lot was bordered by a private driveway on the neighboring property and a public street. In order to gain access from the public street Harger originally anticipated a two-story home. Originally, it was thought that a two-story home would provide the most cost-effective driveway. Harger negotiated with a buyer previously, and due to the difficulty in accessing the property from the public street the contract fell through. O'Connor informed Harger that she would be able to acquire an easement in the private driveway. There is testimony that the slope of the lot was such that a drive-way to a one-story home would have dramatically increased the cost in the Pricing Contract. O'Connor and Harger decided to build a one-story home with an easement on the neighboring private driveway.

The Pricing Contract conditioned the price of $585,000 on excavation costs accounting for the use of the existing access road. The district court found that Harger knew that no easement on the private driveway existed at the time that the lot was purchased by Harger, and that O'Connor determined that an easement would be granted. The court further found that O'Connor made a representation to Harger that an easement on the private driveway could be obtained.

In September, Harger and O'Connor learned that the neighbors were unwilling to grant an easement on the private driveway. In late September or early October the parties learned that the footprint for the house was too large, and the house would need to be reduced by four feet in order to fit on the lot. It was at this point that any contemplated building was halted while O'Connor and Harger determined whether (1) access could be obtained through an easement (either by consent or through legal action), and (2) a variance would be granted in order to build the house as planned, or if the house should be redesigned.

Due to the delay in construction because of the problems with the easement on the private driveway and the variance, in April 2005, Harger sent O'Connor a letter offering to sell the land at the current market value ($319,000) or to rescind the contract and return her full deposit, purchasing the tiles (construction materials) in her possession. O'Connor filed the current action after receipt of the April 2005 letter.

The following issues are presented to this Court on appeal:

1. Whether the district court abused its discretion when it found that a mutual mistake of fact existed between O'Connor and Harger.

2. Whether the district court incorrectly placed the burden on O'Connor to disprove that a mistake of fact existed.

3. Whether the district court erred by not awarding O'Connor specific performance for the sale of the land.

4. Whether the district court erred when it granted an equitable remedy which was not plead by either party.

5. Whether the district court erred by granting rescission when Harger had not yet tendered O'Connor the return of her consideration.

6. Whether the district court abused its discretion when, as part of the rescission and return of O'Connor's deposit, the court ordered O'Connor to pay for construction materials that remained in her possession.

7. Whether Harger is entitled to attorney's fees on appeal.

STANDARD OF REVIEW

This Court exercises free review over questions of law. Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173 176, 45 P.3d 829, 832 (2002). The imposition of equitable remedies is a question of fact because it requires the trial court to balance the equities of each party. West Wood Inv., Inc. v. Acord, 141 Idaho 75, 82, 106 P.3d 401, 408 (2005) (citing Sword v. Sweet, 140 Idaho 242, 92 P.3d 492 (2004)). Findings of fact by the trial court will not be overturned on appeal absent a showing that they are clearly erroneous and not supported by substantial and competent evidence. West Wood Inv., Inc., 141 Idaho at 82, 106 P.3d at 408 (quoting Conley v. Whittlesey, 133 Idaho 265, 269, 985 P.2d 1127, 1131 (1999)). A trial court does not abuse its discretion if it (1) correctly perceives the issue as discretionary, (2) acts within the bounds of discretion and applies the correct legal standards, and (3) reaches the decision through an exercise of reason. West Wood Inv., Inc., 141 Idaho at 82, 106 P.3d at 408 (citing Sun Valley Potato Growers, Inc. v. Texas Refinery Corp., 139 Idaho 761, 765, 86 P.3d 475, 482 (2004)).

The district court did not err when if found a mutual mistake of fact existed between O'Connor and Harger.

Rescission is an equitable remedy which ideally brings the parties to their pre-contract status quo. Murr v. Selag Corp., 113 Idaho 773, 777, 747 P.2d 1302, 1306 (Ct. App.1987) (citing Blinzler v. Andrews, 94 Idaho 215, 485 P.2d 957 (1971), overruled on other grounds; Barnard & Son, Inc. v. Akins, 109 Idaho 466, 708 P.2d 871 (1985)). It abrogates the contract and restores parties to their original position, as if the contract had never occurred. Primary Health Network, Inc. v. State, Dep't of Admin., 137 Idaho 663, 668, 52 P.3d 307, 312 (2002). Rescission is the proper remedy where there is a mutual mistake of fact that is material or fundamental to the contract. Murr, 113 Idaho at 777, 747 P.2d at 1306 (citations omitted). "[M]utual mistake permits a party to rescind or modify a contract as long as the mistake is so substantial and fundamental as to defeat the object of that party." Primary Health Network, Inc., 137 Idaho at 668, 52 P.3d at 312 (citing United States v. Fowler, 913 F.2d 1382 (9th Cir.1990)).

The party alleging the mutual mistake of fact bears the burden of proof. Murr, 113 Idaho at 777, 747 P.2d at 1306; Metro. Life Ins. Co. v. McClelland, 57 Idaho 139, 144, 63 P.2d 657, 658 (1937). Whether a mutual mistake of fact exists is a finding of fact and will not be overturned unless it is clearly erroneous. Cline v. Hoyle & Associates Ins., Inc., 108 Idaho 162, 164, 697 P.2d 1176, 1178 (1985) (citing Ed Sparks & Sons v. Joe Campbell Constr. Co., 99 Idaho 139, 578 P.2d 681 (1978)). The mistake must be common to both parties, and must be proven by clear and convincing evidence. Cline, 108 Idaho at 164, 697 P.2d at 1178 (citations omitted).

Here, the district court found that both parties held the mistaken belief that access to the property could be granted by way of an easement on the private driveway. It cannot be said that the court's findings were not supported by substantial and competent evidence. O'Connor believed an easement would be granted, and when the easement was denied by the neighbors, she contacted an attorney to see if there was a legal claim to the easement. Harger relied on O'Connor's assertion that they would grant her an easement based on the neighbor and O'Connor's social relationship. The court found that O'Connor did not file any legal actions attempting to enforce her alleged rights in the easement. The Pricing Contract expressly states that the price of the home was conditioned on access through use of the easement on the private...