Shopping Centers of America, Inc. v. Standard Growth Properties, Inc.

• Decision Date: 17 May 1973
• Citation: 265 Or. 405,509 P.2d 1189
• Parties: SHOPPING CENTERS OF AMERICA, INC., a corporation, Respondent and Cross-Appellant, v. STANDARD GROWTH PROPERTIES, INC., a corporation, Appellant and Cross-Respondent. . In Banc
• Court: Oregon Supreme Court

Page 1189

509 P.2d 1189

265 Or. 405

SHOPPING CENTERS OF AMERICA, INC., a corporation, Respondent and Cross-Appellant, v. STANDARD GROWTH PROPERTIES, INC., a corporation, Appellant and Cross-Respondent.

Supreme Court of Oregon. In Banc.

Argued and Submitted on Rehearing Jan. 8, 1973.

Decided May 17, 1973.

John R. Faust, Jr., Portland, argued the cause for appellant and cross-respondent. With him on the briefs were Cake, Jaureguy, Hardy, Buttler, McEwen & Weiss, Portland.

Francis E. Marsh and David C. Haugeberg, McMinnville, argued the cause for respondent and cross-appellant. With them on the briefs were Marsh, Marsh, Dashney & Cushing, McMinnville; David C. Haugeberg, McMinnville, argued the cause for respondent and cross-appellant on rehearing.

DENECKE, Justice.

We granted a rehearing to reconsider plaintiff's right to rescission of a land sale contract. We affirmed the decree of rescission in our former opinion on the ground that there had been a mutual mistake. The defendant contends that mutual mistake was not an issue in the case and that if it had been it could have introduced additional evidence that no mutual mistake had occurred. Plaintiff answers that mutual mistake was an issue and was proved.

Mr. Bright, president of the plaintiff, acted for the plaintiff in this whole transaction. He was an experienced real estate developer who previously developed property in Hawaii and Alaska. He became acquainted with this property while representing another party interested in exchanging its equity in a shopping center for the property.

Mr. Bright inspected the property and subsequently purchased an adjacent 87 acres. In July 1969 he moved into a home on that land. As he said, 'All I had to do was look out the front door and I can see the whole 827 acres.' He became interested in developing the 827 acres and negotiated with defendant for its purchase. In November 1969 the parties entered into the contract of purchase.

Plaintiff alleged three grounds for rescission in its complaint--fraudulent representation, innocent misrepresentation and breach of contract. The allegation of misrepresentation stated:

'(a) That in the tract of land, the subject of the sale hereinabove described and which was commonly referred to as Rancho Verde, there was 827 acres of rich farmland and recreational property with a potential of more than 90% Return on the invested capital in less than two years.

'(b) That said 827 acres of Rancho Verde as above describe could be subdivided into 5--10 acre ranchettes which were in great demand in the area where the Rancho Verde lands were located.

'(c) That the real property described in said contract (Exhibit 'A') attached hereto could be readily subdivided into lots and tracts and was suitable for a subdivision and complied with all the laws of the State of Oregon relating to subdivisions within the state and that similar land had been approved by authorities as subdivided tracts and had consistently sold for from $1,000 to $1,500 an acre.

'* * *

'The foregoing representations made to the plaintiff by the defendant were, in fact, at the time made, false and untrue in that said land could not be subdivided and was not rich farmland and recreational property and similar tracts had not been subdivided, and all of said representations at said time were false and untrue.'

At trial the principal contentions of misrepresentation were that defendant represented that the property could be subdivided into 5- to 10-acre tracts and the plaintiff should have no trouble getting approval from the county planning authorities for subdividing the property. The evidence was that a brochure published by defendant's agent stated: 'With the vast diversity of the land, Rancho Verde school be subdivided into 5--10 acre ranchettes * * *.' Plaintiff's president testified defendant's agent told him there would be no problem getting Planning Commission approval of the use of septic tanks. This was the only evidence of representations by defendant.

Bright testified his original idea was to 'cut it up into 150 five-acre tracts' with the remaining area, about 75 acres, to be held in common for duck ponds, horse barns, dog kennels, bird hatcheries, pool and lodge. When the winter rains came Bright saw that 'several hundred acres' were under water; so he decided to divide about half the land into 2 1/2-acre tracts and to use the other half for the various improvements and recreational use.

Before Bright signed the contract with defendant, in November, he talked with the County Planning Commission about the proposed development and it had indicated it probably would have no objection, but the plan would be subject to the Health Department's approval. In February 1970 plaintiff had percolation tests run. These tests made it appear that septic tank use was feasible on the portion plaintiff wanted to develop. The County Planning Commission had employed such percolation tests previously to determine the feasibility of using septic tanks. On the basis of the favorable test results in this instance, the commission gave plaintiff tentative approval of the subdivision with 2 1/2-acre tracts on about 400 acres.

Sometime subsequently the Planning Commission was instructed by the State Health Department to consult with the Soil Conservation Service for inquiry into the feasibility of septic tank use. As a result of the Soil Conservation Service's study the area in which septic tanks could be used with the population density desired by plaintiff was reduced an undetermined amount.

In June the Planning Commission tentatively approved the amended proposal of plaintiff. Plaintiff never submitted any final plan to the commission. Plaintiff states that it could not submit any final plan because its contract with defendant required defendant's approval of its subdivision plans and defendant failed to approve.

The trial court, without stating any reasons, found for the defense on the fraud and innocent misrepresentation counts. The plaintiff never has urged at any stage of the appeal that the trial court erred in this respect and we will not further consider misrepresentation.

This is a suit in equity to rescind and we, therefore, review de novo. We held that mutual mistake was in issue and found that the parties were mutually mistaken in their belief that 750 acres of the 827 acres could be subdivided and that this mistake 'so frustrated the purposes of the contract for the subdivision and development of the tract as to justify a rescission of the contract.' After further examination of the puzzling record and further briefs and oral argument we conclude that we were in error and we find that there was not such a mutual mistake as would justify the rescission of the contract.

A contract may be rescinded if the parties enter into it through a mutual mistake on their part. Both parties must be mistaken. '(M)istake means a state of mind that is not in accord with the facts.' 2 Restatement 958, Contracts § 500. The mistake must be fundamental in character. Highway Comm. v. State Construction Co., 203 Or. 414, 435, 280 P.2d 370 (1955). Stated differently, 'Mistake Must Relate to Fundamental Assumption. It is often said that a mistake, in order to justify rescission, must relate to the intrinsic nature of the bargain * * *.' 13 Williston, Contracts (3d ed.) 94, § 1544.

The only evidence that defendant entered into the contract in a mistaken belief about the number of acres that could be subdivided was a statement in the brochure of the realtor representing defendant, which was: 'With the vast diversity of the land, Rancho Verde should be subdivided into 5--10 acre ranchettes * * *.' We said in our opinion that defendant conceded at oral argument 'that a mutual mistake existed * * * in that both parties * * * assumed and understood that most of the entire tract of 827 acres could be subdivided when, in fact, more than one half of the tract was so low that it was not suitable for subdivision.' 498 P.2d at 784--785. But counsel for defendant merely said that the parties 'contemplated' they could subdivide more lots than they actually could. It is doubtful whether the evidence preponderates to the view that defendant was mistaken in any material or substantial way on the amount of acreage available for subdivision.

More important, we find the evidence preponderates to the view that the number of acres available for subdivision for homesites did not relate to 'the intrinsic nature of the bargain.' Off hand, this seems like a specious observation, but we believe it is correct as it relates to this particular property and plaintiff's plan for development.

The plaintiff did not testify that the property was worth less because it had less space for homesites than Bright had originally anticipated. When Bright bought the property the evidence is that he contemplated selling 5--10 acre homesites and having about 77 acres as a community area with horse barns, riding stable, duck lakes, swimming pool, lodge, etc. When he saw in the winter that more land was water soaked than he anticipated he changed the details of his plan but not the basic concept. He testified: '* * * (S)o, I didn't change the concept of Palomino Farms a bit, I just decided to do the recreational areas in spades; instead of four duck ponds, let's dig up five or ten duck ponds * * *.' Instead of proposing that each homesite owner fulfill his urge for open space by having 5 to 10 acres surrounding the house and the use of a few acres in common with his neighbors, plaintiff was going to accomplish the same purpose by drastically reducing the size of the homesites but drastically increasing the size of the common area.

Bright liked the changed development better than the original. He testified: 'We still felt it saleable, ultimately; the quality of the product we were going to merchandise was better than the original idea.' He reiterated that the final plan using...