Henry v. Mitchell

• Decision Date: 06 June 2013
• Docket Number: No. CV–13–48.,CV–13–48.
• Citation: 428 S.W.3d 454,2013 Ark. 246
• Parties: Paul HENRY and Crystal Henry, Appellants v. Willard N. MITCHELL, Appellee.
• Court: Arkansas Supreme Court

2013 Ark. 246
428 S.W.3d 454

Paul HENRY and Crystal Henry, Appellants
v.
Willard N. MITCHELL, Appellee.

No. CV–13–48.

Supreme Court of Arkansas.

June 6, 2013.

[428 S.W.3d 456]

Rose Law Firm, Little Rock, by: Patrick J. Goss, Bourgon B. Reynolds, and Haley Heath Burks, for appellants.

Johnson, Sanders & Morgan, Mountain Home, by: Roger L. Morgan, for appellee.

DONALD L. CORBIN, Justice.

Appellants, Paul Henry and Crystal Henry, appeal the judgment of the Baxter County Circuit Court awarding damages to Appellee, Willard N. Mitchell, on his complaint against them for misrepresentation in the sale of real property. The circuit court held a bench trial and then entered judgment based on the finding that the Henrys had mistakenly misrepresented the boundaries of the property and therefore committed constructive fraud. For reversal, the Henrys assert the circuit court erred in (1) disregarding an express waiver and release that Mitchell signed, (2) ruling that Mitchell's reliance on the Henrys' marking of the boundaries was reasonable, (3) using an incorrect measure of damages and failing to require Mitchell to mitigate his damages, and (4) failing to apply the correct burden of proof. In addition, as a fifth point on appeal, the Henrys ask this court to abandon the tort of constructive fraud. Because this latter request would require this court to overrule its precedent recognizing the tort of constructive fraud, we assumed jurisdiction of this appeal pursuant to Arkansas Supreme Court Rule 1–2(b)(5) (2012). We find no merit to any of the points on appeal, and we therefore affirm the judgment.

[428 S.W.3d 457]

Mitchell initiated the present litigation by filing a petition in the Baxter County Circuit Court alleging a single cause of action for fraud. He alleged that he purchased a house on a lot located in the White River Valley subdivision only after the Henrys had misrepresented the location of the property's corners and lot lines, the location of the water well serving the property, and the availability of an easement to access the driveway leading to the house. The petition alleged that Mitchell had incurred damages of $34,844.43 to place the property in the same condition as represented by the Henrys.

The Henrys answered the petition denying the alleged misrepresentations and asserting several affirmative defenses including waiver and release. The Henrys later filed a counterclaim for breach of contract relating to the waiver and release. The Henrys alleged that, in the real-estate-sales contract, Mitchell had agreed to forgo a survey and to hold them harmless for any boundary line or corner discrepancies that may exist or be discovered after closing. The Henrys further alleged that, in a subsequent closing document entitled “Release,” Mitchell accepted the boundaries and corners as marked by the Henrys and agreed to release them from any claims, known or unknown, relating to the negotiation of the real-estate contract. The counterclaim sought damages for costs associated with defending the lawsuit, lost wages, travel expenses, and emotional distress. The counterclaim also sought dismissal of Mitchell's petition.

Mitchell answered the counterclaim and asserted that he agreed to the waiver and release due only to the misrepresentation of the Henrys as to the corners of the property, the location of the well, and the availability of the easement. Mitchell requested that the counterclaim be dismissed.

The circuit court held a bench trial and heard testimony from the Henrys and Mitchell. Mitchell's nephew, Tim Jones, who actually viewed the corners marked by the Henrys, also testified by deposition. The court also heard testimony from the neighbor, Greg Hnedak, who first discovered that the well and the driveway were on his property rather than on Mitchell's property.

Jones testified in his deposition that his uncle, who resided in Ridgeland, Mississippi, asked him to go meet with Paul Henry to verify the corners of a lot and house in the White River Valley area that he was purchasing. According to Jones, Henry flagged the northeast and southeast corners of the property such that a water well and a gravel driveway were located within the eastern boundary of the property being purchased. Jones stated that he specifically asked Henry about the location of the well and that Henry assured him that the well was included on the property his uncle was purchasing. Jones also stated that Henry represented to him that part of the gravel driveway was located on the property his uncle was purchasing and that part of the driveway was an easement. After Jones met with Henry, he communicated Henry's representations to Mitchell.

Mitchell testified at trial that he negotiated the flagging of the corners as part of the offer and acceptance making up the contract. Mitchell explained that his original offer to the Henrys provided that the Henrys would flag all four corners prior to closing, and that the Henrys' counteroffer provided that only the northeast and southeast corners would be flagged. Mitchell testified that he accepted the counteroffer to flag only the two eastern corners. Mitchell clarified that neither his offer nor the Henrys' counteroffer stated that the corners would be flagged according to the best of the Henrys' knowledge

[428 S.W.3d 458]

or to the best of their ability. Mitchell declared that he expected Henry to mark the true northeast and southeast corners of the property and that he was not willing to close on the property before Henry did so. Mitchell confirmed that, after his nephew met with Henry, his nephew's description of the corners matched how the corners had appeared when he had viewed the property. He testified that he would not have signed the release document at closing if he had known that the corners had not been flagged properly.

Greg Hnedak testified at trial that he was an architect from Memphis, Tennessee, and that in July 2007 he purchased the unimproved lot bordering the house and the lot Mitchell had purchased from the Henrys in May 2006. Hnedak stated that he did not discover until after closing on his lot that a survey showed that the well supplying water to Mitchell's house was actually located on Hnedak's property and that a driveway being used by Mitchell was also located on his property. Hnedak stated that he never discovered through any title search or otherwise that any easement or any right to maintain that driveway had been given. Hnedak testified that he had purchased the lot and planned to use the entrance as a beautiful part of the property leading to the home he was going to build on the bluff. He stated that he did not think that he would be sharing the driveway with someone else and that having to do so made him feel that his property was not worth as much as he had paid for it. Hnedak testified that he reached an agreement with Mitchell over the well and the driveway. Hnedak stated that he dictated the terms of the agreement and tried to be reasonable, but was frustrated because the look and feel of the property was especially important to him as an architect. Hnedak and Mitchell reduced their agreement to writing, and the agreement was entered into evidence. The terms of the agreement provided that Hnedak would transfer the real property where the well was located and would also transfer and enlarge the driveway easement. The agreement also required Mitchell to improve the surface driveway and to landscape the area to provide a natural appearance.

Paul Henry testified at trial that when he showed Jones the location of the water well, to the best of his knowledge, the well was on the property Mitchell was purchasing. He also testified that he represented that the road that leads to the back of the property provided access to the property. Henry stated that he realized now that what he marked as the corners were not the true corners of the property. Henry also acknowledged that his contract with Mitchell stated that he would flag the corners but did not state that he would flag the corners to the best of his ability or knowledge. When testifying as a witness for the defense, Henry stated that he marked the corners to the best of his ability and would never have marked them if he had known they had to be correct to the inch. He also stated that the previous owner of Hnedak's lot had given him a thirty-foot easement for the driveway, but the easement was never recorded.

At the conclusion of the bench trial, the circuit court took the matter under advisement. Some months later, the circuit court entered the judgment amending the pleadings to conform to the proof and finding that the Henrys had committed constructive fraud when they mistakenly represented the corners of the property, the location of the well, and the access to the driveway. The circuit court also found that, according to a survey procured by Hnedak, and a later survey procured by Mitchell, neither the well that supplied water to Mitchell's house nor the road that allowed access to the northern part of

[428 S.W.3d 459]

Mitchell's property was actually located on Mitchell's property. The circuit court further found that, in order to obtain full access to his property, Mitchell had to negotiate a resolution to the problem with Hnedak. The circuit court stated that it was clear that the Henrys had acted in good faith with no intent to deceive but that the law does not recognize that alone as a defense to constructive fraud. Furthermore, the circuit court found that the Henrys' constructive fraud vitiated the waiver and release. Accordingly, the judgment awarded damages of $34,094.34, as the amount Mitchell expended to acquire the water well and the access to his property from Hnedak. The judgment also dismissed the Henrys' counterclaim. The Henrys have timely appealed.

The standard of review on appeal from a bench trial is not whether there is substantial evidence to support the findings of the circuit court,...