Opsahl v. Pinehurst Inc.

• Decision Date: 03 June 1986
• Docket Number: No. 8520SC1121,8520SC1121
• Citation: 81 N.C.App. 56,344 S.E.2d 68
• Parties: Douglas E. OPSAHL and wife, Hildegard M. Opsahl v. PINEHURST INC., Purcell Co., Inc., and Pinehurst Receivables Associates, Inc.
• Court: North Carolina Court of Appeals

Page 68

344 S.E.2d 68

81 N.C.App. 56

Douglas E. OPSAHL and wife, Hildegard M. Opsahl v. PINEHURST INC., Purcell Co., Inc., and Pinehurst Receivables Associates, Inc.

No. 8520SC1121.

Court of Appeals of North Carolina.

June 3, 1986.

Thigpen and Evans by John B. Evans, and Barringer, Allen & Pinnix by Noel L. Allen and Miriam J. Baer, Raleigh, for plaintiffs.

Van Camp, Gill, Bryan, Webb & Thompson, P.A. by Douglas R. Gill, Pinehurst, for defendant Pinehurst Inc.

WHICHARD, Judge.

Defendant appeals from that portion of the judgment rescinding the contract on the basis of mutual mistake of fact. Plaintiffs appeal from the court's failure to find an unfair and deceptive trade practice under N.C.Gen.Stat. 75-1.1 and its failure to award plaintiffs' moving and rental expenses as contract damages.

In defendant's appeal we hold that the court should not have applied the doctrine of mutual mistake to the facts here. We further hold, however, that rescission nevertheless may be justified on the basis of a material breach of the contract by defendant.

In plaintiffs' appeal we hold that the court did not err in failing to find an unfair and deceptive trade practice under N.C.Gen.Stat. 75-1.1. We also hold that plaintiffs are not entitled to an award for moving and rental expenses should the court, on remand, grant a rescission for material breach.

Accordingly, the judgment is affirmed in part and vacated in part, and the cause is remanded for further proceedings consistent with this opinion.

Defendant's Appeal

Defendant contends the court erred in rescinding and cancelling the contract on the basis of mutual mistake of fact. We agree.

Under certain circumstances a contract for the sale of real estate may be rescinded on the basis of mutual mistake of fact. See, e.g., MacKay v. McIntosh, 270 N.C. 69, 153 S.E.2d 800 (1967). In MacKay the Court rescinded an executory real estate contract when the parties, at the time of execution, shared the mistaken belief that "the subject property was within the boundaries of an area zoned for business." MacKay, 270 N.C. at 73-74, 153 S.E.2d at 804. The Court reasoned:

"The formation of a binding contract may be affected by a mistake. Thus, a contract may be avoided on the ground of mutual mistake of fact where the mistake is common to both parties and by reason of it each has done what neither intended. Furthermore, a defense may be asserted when there is a mutual mistake of the parties as to the subject matter, the price, or the terms, going to show the want of a consensus ad idem. Generally speaking, however, in order to affect the binding force of a contract, the mistake must be of an existing or past fact which is material; it must be as to a fact which enters into and forms the basis of the contract, or in other words it must be of the essence of the agreement, the sine qua non, or, as is sometimes said, the efficient cause of the agreement, and must be such that it animates and controls the conduct of the parties." 17 Am.Jur.2d, Contracts Sec. 143.

Id. at 73, 153 S.E.2d at 804.

However, in Hinson v. Jefferson, 287 N.C. 422, 215 S.E.2d 102 (1975), our Supreme Court expressly refused to apply the mutual mistake of fact theory to an executed, as opposed to executory, real estate sale contract. Hinson, 287 N.C. at 432-33, 215 S.E.2d at 109-10. The parties there mistakenly assumed the subject property could support an on-site sewage disposal system and thus be suitable for a residence. Id. The Court explained:

[B]ecause of the uncertainty surrounding the law of mistake we are extremely hesitant to apply this theory to a case involving the completed sale and transfer of real property. Its application to this type of factual situation might well create an unwarranted instability with respect to North Carolina real estate transactions and lead to the filing of many nonmeritorious actions. Hence, we expressly reject this theory as a basis for plaintiff's rescission.

Id. The Court found, instead, that defendants had breached an implied warranty arising out of the restrictive covenants that the subject property was suitable for residential purposes. Id. at 435-36, 215 S.E.2d at 110-11. Accordingly, the Court held that plaintiff was entitled to full restitution of the purchase price provided she reconveyed title to the subject lot to defendants. Id. at 436, 215 S.E.2d at 111.

Our Supreme Court later qualified Hinson in Financial Services v. Capitol Funds, 288 N.C. 122, 217 S.E.2d 551 (1975). The Court there held that a real estate contract was not subject to rescission for mutual mistake of fact where the purchaser mistakenly assumed that an effective driveway permit for the subject property had been obtained by the assignor of an option to purchase the property. Financial Services, 288 N.C. at 137-39, 217 S.E.2d at 561-63. The Court stated:

Although this Court will readily grant equitable relief in the nature of reformation or rescission on grounds of mutual mistake when the circumstances justify such relief, we jealously guard the stability of real estate transactions and require clear and convincing proof to support the granting of this equitable relief in cases involving executed conveyances of land. [Citation omitted.]

Id. at 139, 217 S.E.2d at 562.

In Homes, Inc. v. Gaither, 31 N.C.App. 118, 228 S.E.2d 525, disc. rev. denied, 291 N.C. 323, 230 S.E.2d 675 (1976), this Court, following MacKay, supra, upheld the trial court's application of the mutual mistake of fact theory. The parties in Homes, Inc. mistakenly assumed that the applicable zoning ordinance permitted conversion and use of the subject property from a hotel to an apartment complex. Homes, Inc., 31 N.C.App. at 119, 228 S.E.2d at 526. The Court found that this mistake was as to a material fact and held that plaintiff was entitled to rescind the contract for sale. Id. at 120-21, 228 S.E.2d at 527.

Viewing the facts here in light of the foregoing decisions, we hold that the court incorrectly relied on the theory of mutual mistake of fact as the basis for granting rescission. The court concluded that "[t]he parties contracted on the mistaken belief that all roadway and utility services would be available on the lot in question on or before December 31, 1981." While timely completion may have been material to the parties' agreement (see infra ), it does not justify rescission based on a mutual mistake of fact. Specifically, the firmness of the completion dates pertains to future performance rather than to " 'an existing or past fact....' " MacKay, supra, 270 N.C. at 73, 153 S.E.2d at 804. In general, to justify a rescission of a contract for a mutual mistake of fact, the mistake must concern facts as they existed at the time of the making of the contract; reliance on a prediction as to future events will not support a claim for rescission based on mutual mistake of fact. Boles v. Blackstock, Ala., 484 So.2d 1077, 1081-82 (1986). See also Duane Realty Corp. v. Great Atlantic & Pacific Tea Co., 8 Mass.App.Ct. 899, 394 N.E.2d 964 (1979) (there is no mistake where a party is disappointed that its expectation as to future events proved to be erroneous). See, generally, Restatement (Second) of Contracts Sec. 151 (1979) at Comment a ("A party's prediction or judgment as to events to occur in the future, even if erroneous, is not a 'mistake' as that word is defined here."). The Court in Hinson, supra, acknowledged this distinction as a relevant factor in mutual mistake cases for determining whether the aggrieved party is entitled to some kind of relief. 287 N.C. at 430, 215 S.E.2d at 108. In light of our Supreme Court's reluctance to apply the mutual mistake of fact doctrine to completed sales of real estate, Hinson, supra, and Financial Services, supra, we hold that the doctrine should not apply here, where the mistake pertains to a future contingency or probability regarding the certainty of future performance rather than to a fact which existed at the time the parties entered the agreement, such as existing zoning restrictions, MacKay, supra.

As in Hinson, supra, the question now arises: "[Are] plaintiff[s] therefore without a remedy?" Hinson, 287 N.C. at 433, 215 S.E.2d at 109; and the answer here is: not necessarily. It follows from Hinson that, although rescission for mutual mistake is not proper, the evidence may support another theory of recovery which provides plaintiffs with comparable relief. In Hinson this theory was an implied warranty arising out of the restrictive covenants. Hinson, 287 N.C. at 435-36, 215 S.E.2d at 110-11. The Court's substitution of theories in Hinson was consistent with the general principle that a trial court's "ruling must be upheld if it is correct upon any theory of law[,]" and thus it should "not be set aside merely because the court gives a wrong or insufficient reason for [it]." Manpower, Inc. v. Hedgecock, 42 N.C.App. 515, 519, 257 S.E.2d 109, 113 (1979). See also Sanitary District v. Lenoir, 249 N.C. 96, 99, 105 S.E.2d 411, 413 (1958) (if correct result reached, judgment should not be disturbed even though court may not have assigned the correct reasons for the judgment entered); Payne v. Buffalo Reinsurance Co., 69 N.C.App. 551, 555, 317 S.E.2d 408, 411 (1984) (it is common learning that a correct judgment must be upheld even if entered for the wrong reason).

While the court here improperly based rescission on the theory of mutual mistake, rescission may nevertheless be proper on the theory of material breach of contract. We are unable to conclude from the record as a matter of law, however, whether the particular facts and circumstances warrant application of this theory. We thus vacate those portions of the judgment relating to mutual mistake and remand the cause for consideration under the theory of material breach.

The Supreme Court has indicated that upon the breach of a contract for the purchase and sale of real estate by the seller, the buyer has the...