Cousineau v. Walker, 4551

• Citation: 613 P.2d 608
• Decision Date: 27 June 1980
• Docket Number: No. 4551,4551
• Parties: Loren R. COUSINEAU and Marilyn J. Cousineau, Wayne F. Cousineau and Diane B. Cousineau, Curtis E. Dahl and Bonnie L. Dahl, Appellants, v. Devon A. WALKER and Joan Walker, Appellees.
• Court: Alaska Supreme Court

Page 608

613 P.2d 608

Loren R. COUSINEAU and Marilyn J. Cousineau, Wayne F.

Cousineau and Diane B. Cousineau, Curtis E. Dahl and Bonnie L. Dahl, Appellants, v. Devon A. WALKER and Joan Walker, Appellees.

No. 4551.

Supreme Court of Alaska.

June 27, 1980.

Dennis M. Mestas, Mestas & Schneider, Anchorage, for appellants.

John W. Sivertsen, Jr., and Terry C. Aglietti, Aglietti, Offret & Pennington, Anchorage, for appellees.

Before RABINOWITZ, C. J., and CONNOR, BOOCHEVER, BURKE and MATTHEWS, JJ.

OPINION

BOOCHEVER, Justice.

The question in this case is whether the appellants are entitled to rescission of a land sale contract because of false statements made by the sellers. The superior court concluded that the buyers did not rely on any misrepresentations made by the sellers, that the misrepresentations were not material to the transaction, and that reliance by the buyers was not justified. Restitution of money paid under the contract was denied. We reverse and remand the case to the superior court to determine the amount of damages owed the appellants.

In 1975, Devon Walker and his wife purchased 9.1 acres of land in Eagle River, Alaska, known as Lot 1, Cross Estates. They paid $140,000.00 for it. A little over a year later, in October, 1976, they signed a multiple listing agreement with Pat Davis, an Anchorage realtor. The listing stated that the property had 580 feet of highway frontage on the Old Glenn Highway and that "ENGINEER REPORT SAYS OVER 1 MILLION IN GRAVEL ON PROP." The asking price was $245,000.00.

When the multiple listing expired, Walker signed a new agreement to retain Davis as an exclusive agent. In the broker's contract, the property was again described as having 580 feet of highway frontage, but the gravel content was listed as "minimum 80,000 cubic yds of gravel." The agreement also stated that 2.6 acres on the front of the parcel had been proposed for B-3 zoning (a commercial use), and the asking price was raised to $470,000.00.

An appraisal was prepared to determine the property's value as of December 31 1976. Walker specifically instructed the appraiser not to include the value of gravel in the appraisal. A rough draft of the appraisal and the appraiser's notes were introduced at trial. Under the heading, "Assumptions and Limiting Conditions," the report stated the appraisal "does not take into account any gravel . . . ." But later in the report the ground was described as "all good gravel base . . . covered with birch and spruce trees." The report did not mention the highway footage of the lot.

Wayne Cousineau, a contractor who was also in the gravel extraction business, became aware of the property when he saw the multiple listing. He consulted Camille Davis, another Anchorage realtor, to see if the property was available. In January, Cousineau and Camille Davis visited the property and discussed gravel extraction with Walker, although according to Walker's testimony commercial extraction was not considered. About this time Cousineau offered Walker $360,000.00 for the property. Cousineau tendered a proposed sales agreement which stated that all gravel rights would be granted to the purchaser at closing.

Sometime after his first offer, Cousineau attempted to determine the lot's road frontage. The property was covered with snow, and he found only one boundary marker. At trial the appraiser testified he could not find any markers. Cousineau testified that he went to the borough office to determine if any regulations prevented gravel extraction.

Despite Walker's reference to an "Engineer Report" allegedly showing "over 1 million in gravel," Walker admitted at trial that he had never seen a copy of the report. According to Walker's agent, Pat Davis, Camille Davis was told that if either she or Cousineau wanted the report they would have to pay for it themselves. It was undisputed that Cousineau never obtained the report.

In February, 1977, the parties agreed on a purchase price of $385,000.00 and signed an earnest money agreement. The sale was contingent upon approval of the zoning change of the front portion of the lot to commercial use. The amount of highway frontage was not included in the agreement. Paragraph 4(e) of the agreement conditionally granted gravel rights to Cousineau. ¹ According to the agreement, Cousineau would be entitled to remove only so much gravel as was necessary to establish a construction grade on the commercial portion of the property. To remove additional gravel, Cousineau would be required to pay releases on those portions of ground where gravel was removed. This language was used to prevent Walker's security interest in the property from being impaired before he was fully paid.

Soon after the earnest money agreement was signed, the front portion of the property was rezoned and a month later the parties closed the sale.

There is no reference to the amount of highway frontage in the final purchase agreement. An addendum to a third deed of trust incorporates essentially the same language as the earnest money agreement with regard to the release of gravel rights.

After closing, Cousineau and his partners began developing the commercial portion of the property. They bought a gravel scale for $12,000.00 and used two of Cousineau's trucks and a loader. The partners contracted with South Construction to remove the gravel. According to Cousineau's testimony, he first learned of discrepancies in the real estate listing which described the lot when a neighbor threatened to sue Cousineau because he was removing gravel from the neighbor's adjacent lot. A recent survey shows that there is 415 feet of highway frontage on the property not 580 feet, as advertised.

At the same time Cousineau discovered the shortage in highway frontage, South Construction ran out of gravel. They had removed 6,000 cubic yards. To determine if there was any more gravel on the property, a South Construction employee bulldozed a trench about fifty feet long and twenty feet deep. There was no gravel. A soils report prepared in 1978 confirmed that there were no gravel deposits on the property.

After December, 1977, Cousineau and his partners stopped making monthly payments. At that time they had paid a total of $99,000.00 for the property, including a down payment and monthly installments. In March, 1978, they informed Walker of their intention to rescind the contract. A deed of trust foreclosure sale was held in the fall of 1978, and Walker reacquired the property. At a bench trial in December, Cousineau and his partners were denied rescission and restitution.

Among his written findings of fact, the trial judge found:

At some point in time, between October 24, 1976, and January 11, 1977, there existed a multiple listing advertisement which included information relating to gravel as well as road frontage, said information subsequently determined to be incorrect.

He further found:

The plaintiffs did not rely on any misinformation or misrepresentations of defendants. The claimed misinformation about gravel on the property and the road frontage was not a material element of the parties' negotiations, and these pieces of information did not appear in the February 16, 1977 purchase agreement document prepared by attorney Harland Davis, attorney for the plaintiffs and signed by the parties.

In part, based on these findings, the court adopted the following conclusions of law:

The plaintiffs are not entitled to rescission of the contract of sale or restitution as they were not entitled to rely on the alleged misrepresentation.

The information which allegedly formed the basis of the misrepresentation was not material in the instant transaction, the agreement reached by the parties was valid and does not suffer any taint or defect of misrepresentation.

I. RESCISSION OF THE CONTRACT

Numerous cases hold and the Restatement provides that an innocent misrepresentation ² may be the basis for rescinding a contract. ³ There is no question, as the trial judge's findings of fact state, that the statements made by Walker and his real estate agent in the multiple listing were false. ⁴ Three questions must be resolved however, to determine whether Cousineau is entitled to rescission and restitution of the amount paid for the property on the basis of the misrepresentations. First, it must be determined whether Cousineau in fact relied on the statements. Second, it must be determined whether the statements were material to the transaction that is, objectively, whether a reasonable person would have considered the statements important in deciding whether to purchase the property. Finally, assuming that Cousineau relied on the statements and that they were material, it must be determined whether his reliance was justified. ⁵

A. Reliance on the False Statements

As quoted above, in his findings of fact, the trial judge stated, "The plaintiffs did not rely on any misinformation or misrepresentations of defendants." Because this case was decided by a judge without a jury, our standard of review of factual findings is the "clearly erroneous" standard. Alaska R.Civ.P. 52(a). When a finding leaves the court with the definite and firm conviction on the entire record that a mistake has been made, it is clearly erroneous. Lewis v. Anchorage Asphalt Paving Co., 579 P.2d 532, 534 (Alaska 1978). In our opinion, the trial judge's finding that Cousineau and his partners did not rely on the statements made by Walker is clearly erroneous.

Regardless of the credibility of some witnesses, ⁶ the uncontroverted facts are that Wayne Cousineau was in the gravel extraction business. He first became aware of the property through a multiple listing that said "1 MILLION IN GRAVEL." The subsequent listing stated that there were 80,000 cubic yards of gravel. Even if Walker might have taken the position that the sale was based on the appraisal, rather than the listings, the appraisal does not disclaim the earlier...