El Paso Natural Gas Co. v. Kysar Ins. Agency, Inc.

• Decision Date: 29 November 1979
• Docket Number: Nos. 3828,3812,s. 3828
• Citation: 605 P.2d 240,1979 NMCA 152,93 N.M. 732
• Parties: EL PASO NATURAL GAS COMPANY, a corporation, Plaintiff-Appellant and Cross- Appellee, v. KYSAR INSURANCE AGENCY, INC., and Raymond Kysar, Jr., Defendants-Appellees and Cross-Appellants.
• Court: Court of Appeals of New Mexico

Page 240

605 P.2d 240

93 N.M. 732

EL PASO NATURAL GAS COMPANY, a corporationPlaintiff-Appellant and Cross- Appellee, v.KYSAR INSURANCE AGENCY, INC., and Raymond Kysar, Jr.Defendants-Appellees and Cross-Appellants.

Nos. 3828, 3812.

Court of Appeals of New Mexico.

Nov. 29, 1979.

John B. Pound, Montgomery, Andrews & Hannahs, Santa Fe, Damon Weems, Farmington, for plaintiff-appellant and cross-appellee.

James B. Cooney, Cooney & Curtis, Farmington, John R. Cooney, Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, for defendants-appellees and cross-appellants.

OPINION

HENDLEY, Judge.

El Paso Natural Gas (El Paso) filed a six count complaint seeking damages and declaratory relief against defendantsKysar Insurance Company and Raymond Kysar(Kysar) based on alternative claims sounding in rescission, reformation, breach of fiduciary duty, and breach of contract.Kysar counter-claimed alleging a breach of the covenant of quiet enjoyment.El Paso filed a motion to dismiss the counter-claim, which was treated as a motion for summary judgment, and Kysar filed a motion for summary judgment on the complaint.Both were granted in their entirety by the court below and were appealed to this court.We reverse in part and remand.

FACTS

During May, 1972, Western Building Associates(WBA), owners of the Petroleum Building in Farmington, New Mexico, a partnership in which Raymond Kysar was the managing partner and majority shareholder, entered into a lease with Kysar Insurance Company.The lease rented 1,953 square feet of office space for $200.00 per month for five years with an option to renew for two additional five year terms.Mr. Kysar stated that he received a more favorable rental rate than other tenants as compensation for his managing the Petroleum Building and for completing the construction of the office space in question.

On September 3, 1974, Kysar exercised its option to renew for the first additional five year term.El Paso alleged in its complaint that at that time Kysar knew that El Paso was giving serious consideration to exercising an option it held to purchase the building.The option was in El Paso's lease with WBA and was signed by Mr. Kysar.

On February 23, 1975, El Paso gave formal notice of its intent to exercise the option.Due to a dispute over the meaning of the option clause, WBA refused to convey the premises in question and El Paso filed a specific performance action in Federal District Court.El Paso Natural Gas v. Western Building Associates, No. 75-198(USDC-D.N.M., 1976).On April 4, 1977, the federal court ordered WBA to transfer title to the building, along with all net profits acquired during the period in dispute.One of the court's findings of fact was that Kysar's rent was only $200.00 per month and that the management service performed by Mr. Kysar was not part of his rental consideration.

On or about July 1, 1977, El Paso began to manage the building itself.On July 29, 1977, El Paso sent a letter stating that it believed that the actual rent received by its predecessor included Mr. Kysar's services, thereby insisting that Kysar pay an increased cash rental fee.On August 11, 1977, El Paso sent Kysar another letter stating his new rental to be $976.50 per month.On November 29, 1977, El Paso gave Kysar notice to quit based on Kysar's continuing rendition of $200.00 rent.When Kysar refused to vacate the premises, El Paso initiated the instant lawsuit.Throughout all times relevant to this inquiry, Kysar remained in possession of its office space.

At the hearing on the motions for summary judgment, the court below indicated two bases for granting Kysar's motion, one being that the federal court litigation had resolved the controversy and the other being that in purchasing the written lease, El Paso could not contest its express terms.In granting El Paso's motion, the district court felt that Kysar had failed to suffer any damage despite presenting a valid claim.

RES JUDICATA/COLLATERAL ESTOPPEL

Our first inquiry is whether the related doctrines of Res judicata and collateral estoppel form an appropriate basis for the granting of Kysar's motion.The doctrine of Res judicata is inapplicable to the instant controversy.Phillips v. United Serv. Auto. Ass'n, 91 N.M. 325, 573 P.2d 680(Ct.App.1977)quoting from an early Supreme Court case, stated the legal standards required for a finding of Res judicata.

To make a matter res judicata there must be a concurrence of the four conditions following, viz: First, identity of the subject-matter; second, identity of cause of action; third, identity of persons and parties; and fourth, identity in the quality of the persons for or against whom claim is made.Lindauer Mercantile Co. v. Boyd, 11 N.M. 464, 475, 70 P. 568, 570(1902).

SeeAtencio v. Vigil, 86 N.M. 181, 521 P.2d 646(1974).

Since the federal court suit, which Kysar would have this court find as a bar to the present action, was a specific performance action, the causes of action are dissimilar and, therefore, the doctrine of Res judicata is inapplicable.

In State v. Tijerina, 86 N.M. 31, 519 P.2d 127(1973), the Supreme Court defined collateral estoppel as follows:

It means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that the issue cannot again be litigated between the Same parties in any future lawsuit.(Emphasis added.)

Contrary to this view, Kysar would have this court adopt the "modern view of collateral estoppel" first announced by Justice Traynor in Bernhard v. Bank of America, 19 Cal.2d 807, 122 P.2d 892(1942).That view holds that it is not essential for one seeking to collaterally enforce the earlier judgment to have been a party to the earlier proceeding, thereby rejecting the validity of the doctrine of mutuality.In Atencio, Supra, the Supreme Court once again refused to adopt the "modern view of collateral estoppel."We cannot change that holding.Alexander v. Delgado, 84 N.M. 717, 507 P.2d 778(1973).

In this case, Mr. Kysar is a named party based on his affiliation with Kysar Insurance Company, a lessee in the building in question.In the earlier federal suit he was a named party based on his association with WBA.Therefore, Raymond Kysar cannot avail himself of the doctrine of collateral estoppel.

SUMMARY JUDGMENT ON EL PASO'S COMPLAINT

Summary judgment is only appropriately granted when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.In determining whether any such material issues of fact exist, all reasonable inferences are to be drawn in favor of the party opposing a motion for summary judgment.Goodman v. Brock, 83 N.M. 789, 498 P.2d 676(1972).

1.RESCISSION

El Paso's prayer for rescission, based on substantial failure of consideration, was properly dismissed.In Samples v. Robinson, 58 N.M. 701, 275 P.2d 185(1954), the court stated that substantial failure of consideration is an appropriate ground for rescission, but only where the unperformed consideration goes to the essence of the contract and is not compensable damages.The failure of consideration alleged by El Paso is failure to perform services or to pay fair market value for those services.This did not go to the essence of the contract.

El Paso's claim for rescission, based on fraud and constructive fraud, was improperly dismissed.The rule in New Mexico is that an instrument may be cancelled where its creation was the product of a fraudulent or inequitable conduct.Anderson v. Reed, 20 N.M. 202, 148 P. 502(1915).In Anderson, Supra, the Supreme Court found that fraud must often be established by use of circumstantial evidence due to the fact that it generally relates to one's private intentions.It is this very nature of a count in fraud that led the Supreme Court to state, ". . . ordinarily claims of fraud present an issue of fact which cannot be determined on motion for summary judgment."General Acceptance Corp. of Roswell v. Hollis, 75 N.M. 553, 408 P.2d 53(1965).The Supreme Court has defined constructive fraud as ". . . a breach of a legal or equitable duty irrespective of the moral guilt . . . it is not necessary that actual dishonesty of purpose nor intent to deceive exist."Snell v. Cornehl, 81 N.M. 248, 466 P.2d 94(1970).Therefore, constructive fraud, as well as actual fraud, may be the basis of cancellation of an instrument under Anderson, Supra.The facts taken in their most favorable light to El Paso raise a material issue of fact as to fraud.

2.REFORMATION

El Paso's complaint also stated a prayer for reformation of Kysar's lease with WBA.The only supported basis for this relief is fraud.El Paso would have this court reform the contract to conform to the premises' fair market value.Reformation is appropriate where there is fraud in the execution; that is, where the two parties make an agreement and one of the parties fraudulently causes the contract to state a term varying from the parties' earlier agreement, since the purpose of reformation is to give fruition to what the parties actually agreed.Pomeroy, Equity Jurisprudence(5th Ed.), Vol. 3, Sec. 910, pp. 574-576;Dolph v. Lennon's Inc., 109 Or. 336, 220 P. 161(1923).But where fraud in the inception is alleged (a scheme by which both parties to a contract intentionally include an unfair...