Umphrey v. Sprinkel

• Citation: 106 Idaho 700,682 P.2d 1247
• Decision Date: 12 October 1983
• Docket Number: 13601,Nos. 13600,s. 13600
• Parties: Wallace UMPHREY and Betty Umphrey, husband and wife; Diane M. Horn; John C. Stoke and Dorothy E. Stoke, husband and wife; Don E. Rower and Irene Rower, husband and wife; Gene F. Morgan and Donna J. Morgan, husband and wife; Wayne H. Frovarp and Thelma Frovarp, husband and wife; Fred L. Evans, Jr., and Vivian M. Evans, husband and wife, Plaintiffs-Respondents, v. Gary R. SPRINKEL and Kathleen A. Sprinkel, husband and wife; Northwest Real Estate, Inc., Defendants-Appellants.
• Court: United States State Supreme Court of Idaho

Page 1247

682 P.2d 1247

106 Idaho 700

Wallace UMPHREY and Betty Umphrey, husband and wife; Diane M. Horn; John C. Stoke and Dorothy E. Stoke, husband and wife; Don E. Rower and Irene Rower, husband and wife; Gene F. Morgan and Donna J. Morgan, husband and wife; Wayne H. Frovarp and Thelma Frovarp, husband and wife; Fred L. Evans, Jr., and Vivian M. Evans, husband and wife, Plaintiffs-Respondents, v. Gary R. SPRINKEL and Kathleen A. Sprinkel, husband and wife; Northwest Real Estate, Inc., Defendants-Appellants.

Nos. 13600, 13601.

Supreme Court of Idaho.

Oct. 12, 1983.

On Rehearing Dec. 27, 1983.

[106 Idaho 702]

R. Romer Brown, Coeur d'Alene, for defendants-appellants sprinkels

Sidney E. Smith of Smith, McCabe & Hosack, Coeur d'Alene, and Martin G. Weber of Lukins, Annis, Shine, McKay, Van Martin & Rein, Spokane, Wash., for defendant-appellant Northwest Real Estate.

Michael J. Verbillis and Norman L. Gissel, Coeur d'Alene, for plaintiffs-respondents Umphrey, et al.

Larry A. Wilde, Coeur d'Alene, for plaintiffs-respondents Hannas.

SHEPARD, Justice.

This is an appeal from a judgment against defendants-appellants for fraudulent misrepresentations made in the sale of real property. We affirm in part, reverse in part, and remand.

In 1962, defendant-appellant Gary Sprinkel purchased a one-half interest in a parcel of land of about 670 acres, known as Lone Mountain Ranch. His father and mother were the purchasers of the other one-half interest. On that property was a well. Originally it had been drilled as an oil well to a depth of 1700 feet, but it never produced any oil, and it was converted to a water well at about 400 feet shortly before the Sprinkels bought the property. At the time of the Sprinkels' purchase Edward Brown owned an adjoining piece of land and was using water from the well pursuant to a water right sold to him in 1961 by [106 Idaho 703]

the then owners of Lone Mountain Ranch. The sole residence on Lone Mountain Ranch also used water for this well. The well at that time supplied no other users or uses. In 1970, the residence, the surrounding ten acres, and "all water rights ... used thereon or appurtenant thereto" were deeded to the Antrims, who also obtained an easement for access to the well house, as the well itself was on property retained by the Sprinkels. Approximately two years later that land and accompanying water rights were sold to the Hannas, one of the plaintiffs in this action. The extent of the water right retained by the Sprinkels in the well, if any, after that conveyance is unclear and not directly at issue in this lawsuit

In 1970, defendant Gary Sprinkel bought some shares in defendant Northwest Real Estate Company. Later he obtained his associate broker's license and one-half ownership in Northwest Real Estate, Inc., as well as posts as an officer and director of the company. In the early 1970's, he began to market the Lone Mountain Ranch property. Lone Mountain Ranch was subdivided into 40-acre "investment tracts" and ten-acre "user tracts" and listed for sale with Northwest. Sprinkel's prospectus stated that the user tracts would have "a good year-round road" and "domestic water supplied by REPA ... available prior to June 1st, 1973."

REPA is an acronym for Ramsey Environmental Protection Association. It was made up of local land owners desirous of securing a water supply for the area. REPA was formed in the latter part of 1971 and was incorporated in March, 1972, with Gary Sprinkel as its moving force and first president. The original idea was to supply water to a large area of some 5000 to 6000 acres. In September, 1972, Sprinkel received a letter from the Farmers Home Administration informing him that REPA would not receive any federal grants or loans. No effort was made to apply to any other federal agency and, as of that date, REPA gave up on the idea of a master water system. Sprinkel next formulated a plan, apparently without consultation with the two existing users of the well, to put in a water system for the Lone Mountain tracts using the well on his property, which water system he would then give to REPA to operate. Expansion of the well's capacity beyond the existing two users required that the well casing be perforated. REPA members discussed the possibility, but rejected it in a March, 1974 meeting because of potential liability to the existing users of the well if perforation destroyed the well's capacity. Meanwhile Sprinkel began installing a water system using the well. At trial he contended that the two existing users had one-third interests in the well's equipment only, while he retained all rights to the water in the well.

Sprinkel had attempted to grant each of the purchasers of the user tracts a 1/20th interest in the well water, in the event that REPA did not accept the well. A water system eventually was constructed, with a pump separate from and inferior to that used by the existing two water users. REPA did not take over the well and eventually disbanded. At trial Sprinkel's evidence purportedly showed that the plaintiffs were using more water than were households in surrounding communities. Plaintiffs' evidence, however, indicated that there was insufficient water to bathe daily, to flush their toilets, to wash dishes and clothes, or to provide water for their trees and gardens. Their evidence also showed that when only two households used the well, water had to be rationed if used to water lawns and gardens.

The plaintiffs all purchased "user tracts" within the first eight months of 1973. These purchases apparently were land sale contracts requiring continuing payments to Sprinkel. Plaintiffs-Hannas bought three tracts, totalling 30 acres, as an investment, in addition to their prior purchase of the house and surrounding ten acres purchased from the Antrims. Plaintiffs-Rowers [106 Idaho 704]

bought 20 acres. Plaintiffs-Morgans bought five acres. The other five families who are plaintiffs bought ten acres each. In some of these sales, Sprinkel acted directly as the real estate agent; in others, various employees of Northwest acted as agents. Plaintiff-Horn purchased her tract with her mother, an employee of another real estate company, acting as the realtor

Sprinkel contracted for road construction and in May or June of 1973, the contractor stripped twelve inches of topsoil from the designated roadway area and replaced it with six inches of pit run (rock varying in size from less than 3/4 of an inch up to 12 inches in diameter). The contractor testified that county specifications required six inches more of crushed rock, but Sprinkel did not authorize that further work.

All plaintiffs contend that Sprinkel, or agents of Northwest acting under his direction, made fraudulent representations about the adequacy of the road and water supply. The Hannas filed suit on August 6, 1975, and the remainder of the plaintiffs filed suit a few days later. On the 16th of August, the Sprinkels filed suit against the Hannas, seeking forfeiture of the land contract for failure to make payments, a notice of forfeiture having been sent on July 1, 1975. In October, 1975, the cases were consolidated.

Upon motion of defendant-Northwest Real Estate, the court ordered that the fraud cases be segregated from the foreclosure suit, with the former to be tried first. An extensive pretrial order was entered April 18, 1979, framing the admitted and disputed facts, as well as the exhibits admitted and those to which there were objections. On May 2nd, the court granted Hanna's motion to exclude from the fraud case evidence of the notice of forfeiture sent by Sprinkel, on the grounds that the trials were segregated and that injecting the issue of nonperformance into the trial would unduly confuse the jury in deciding the issue of fraud.

The trial began with jury selection on November 6, 1979. In the First Judicial District, jurors are read a limited number of stock instructions before the start of the proceedings. Instruction No. 7 stated that the party asserting the truth of a fact must show that the proposition is more probably true than not, a preponderance of the evidence instruction. Defendants objected to that instruction on the grounds that in a fraud case the burden of proof is clear and convincing evidence. The court overruled the objection on the grounds that this was a preliminary instruction to orient the jury and that he would instruct them at the close of the trial that the elements of fraud require clear and convincing evidence. This was done in Instruction No. 10. Instruction No. 7 was not repeated at the close of the trial.

The defendants moved several times for dismissal of the suit, claiming it was barred by the two year statute of limitations for professional malpractice rather than the three year limit for fraud. This motion was denied. As to Sprinkel, the court believed that, because he was selling his own property, the professional malpractice statute did not apply to him. Northwest was found to be too tied to Sprinkel and involved in a continuing course of conduct, and the court denied the motion as to Northwest as well.

Both defendants objected to Instruction No. 24, which told the jury they could award "special or consequential" damages if they found fraud, defendants asserting that the instruction conflicted with the out-of-pocket rule of damages. The court overruled this objection on the grounds that the plaintiffs were entitled to damages to compensate them for the repair of the road and to keep the water system working. Northwest and Sprinkel also objected to Instruction No. 24A, which told the jury the proper element of compensatory damages was the difference between contract price and actual value and that they could use the reasonable cost of repair in determining the difference. Appellants asserted that no repairs can be made to "raw land," and [106 Idaho 705]

that this instruction was duplicative of Instruction No. 24....