Watts v. Krebs

• Decision Date: 26 August 1998
• Docket Number: No. 23496,23496
• Citation: 962 P.2d 387,131 Idaho 616
• Parties: Patricia E. WATTS, Plaintiff-Respondent, v. Harold A. KREBS, Defendant-Appellant, Pocatello, May 1998 Term
• Court: Idaho Supreme Court

Page 387

962 P.2d 387

131 Idaho 616

Patricia E. WATTS, Plaintiff-Respondent, v. Harold A. KREBS, Defendant-Appellant,

No. 23496.

Supreme Court of Idaho,

Pocatello, May 1998 Term.

Aug. 26, 1998.

Harold A. Krebs, Sandpoint, pro se Defendant-Appellant.

James H. Paulsen, Sandpoint, for Plaintiff-Respondent.

SCHROEDER, Justice.

This action involves a claim of fraud and waste by Harold Krebs (Krebs) to property held jointly by Krebs and Patricia Watts (Watts) as tenants in common. The district court held that Krebs was guilty of fraud and waste and awarded Watts treble damages and attorney fees. Krebs appeals.

I. BACKGROUND AND PRIOR PROCEEDINGS

Watts and Krebs were married. They divorced February 14, 1985. The divorce decree provided that they would hold two parcels of real property as tenants in common. The parcels had been community property. The decree ordered that the property be sold and the proceeds from the sale be used to satisfy the parties' community debts.

Instead of selling the property, the parties agreed to partition the property, and on April 12, 1991, they entered into a written agreement (hereinafter "partition agreement"). The partition agreement awarded the property "lying East of the thread of Grouse Creek" to Watts. She subsequently sold the property for $140,000. Krebs did not disclose to Watts that in November and December of 1990 he had logged a portion of the property that was awarded to Watts. Watts lived out of state at the time of the logging and did not learn of the logging until August of 1991. Krebs had received $28,854.50 from the sale of the timber after logging costs.

Watts filed a complaint against Krebs, alleging that he had fraudulently induced her to enter into the partition agreement by failing to disclose to her that he had removed timber from the property she ultimately received under the partition agreement. She amended the complaint to allege fraud by concealment of waste to the property, seeking treble damages for waste, conversion of timber and diminution in property value.

After trial on December 27, 1995, the district court held: (1) Krebs was guilty of fraud by inducing Watts to partition the property without disclosing that he had logged the property; (2) Krebs had committed waste pursuant to section 6-201 of the Idaho Code (I.C.) because he took the timber without Watts' knowledge or consent; (3) because Krebs logged the property which Watts agreed to accept under the partition agreement, the situation was no different than if Krebs had intentionally trespassed onto her property and converted her timber; therefore, Watts was entitled to the net timber proceeds of $28,854.50; (4) Watts' damages were trebled pursuant to I.C. § 6-201; and (5) Krebs was not entitled to any accounting or offset other than the expenses for logging. Judgment was entered November 6, 1996.

Watts moved to amend the district court's findings, conclusions and judgment with regard to her request for attorney fees. She also requested an award of prejudgment interest. Krebs filed a notice of appeal from the November 6, 1996, judgment and filed an amended notice of appeal on December 31, 1996. Subsequently, the district court granted Watts' motion awarding her prejudgment interest and attorney fees under an amended judgment dated April 7, 1997. Krebs did not file a subsequent notice of appeal. ¹

II. STANDARD OF REVIEW

This Court will not disturb the district court's factual findings if supported by substantial and competent evidence. Cluff v. Bonner County, 126 Idaho 950, 952, 895 P.2d 551, 553 (1995). On the other hand, this Court is not bound by the legal conclusions of the district court and is free to draw its own conclusions from the facts presented. Id.

III.

THERE IS SUFFICIENT EVIDENCE TO SUPPORT WATTS' CLAIM OF FRAUD, AND THE DISTRICT COURT'S FINDINGS ARE SUFFICIENT TO SUPPORT ITS CONCLUSION THAT KREBS COMMITTED FRAUD.

To establish fraud Watts was required to prove, by clear and convincing evidence, that there was nondisclosure, that she relied upon Krebs' nondisclosure, that her reliance was material to the transaction, and that she was damaged as a proximate result of the nondisclosure. G & M Farms v. Funk Irrigation Co., 119 Idaho 514, 518, 808 P.2d 851, 855 (1991). Krebs argues that the evidence was insufficient to establish a finding of materiality or reliance. He asserts that Watts failed to prove that the existence of a standing crop of timber on the property was material to her decision to partition the property. He maintains that what was material to Watts was the value of the land and that she ultimately sold the property for what she believed it was worth at the time she agreed to the partition. He also claims that Watts failed to prove that he had made any affirmative allegations that would give her a right to rely on his nondisclosure.

A. Materiality

" 'Materiality refers to the importance of the misrepresentation in determining the plaintiff's course of action.' " G & M Farms, 119 Idaho at 521, 808 P.2d at 858 (quoting Edmark Motors, Inc. v. Twin Cities Toyota, 111 Idaho 846, 727 P.2d 1274 (Ct.App.1986)). Krebs argues a subjective test for materiality when he asserts that there is no evidence that having a standing crop of timber on the property was important to Watts at the time of contracting.

The Idaho Court of Appeals has held that the test for materiality can be either objective or subjective. Edmark Motors, Inc., 111 Idaho at 848, 727 P.2d at 1276. Citing to the Restatement (Second) of Torts, the court in Edmark Motors noted that a representation is "material" if:

(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.

Id. (citing RESTATEMENT (SECOND) OF TORTS § 538(2) (1977)).

With regard to the facts of this case, it seems clear that a reasonable person under the circumstances would find the existence or nonexistence of standing timber with a worth in excess of $28,000 on rural property an important fact in determining whether to enter into an agreement to acquire the property. Krebs' nondisclosure of the fact that he had harvested the timber on the property was nondisclosure of a material fact which supports a claim for fraud.

Krebs maintains that the district court did not make a sufficient finding of materiality to support its decision. Implicit in the district court's finding of fraud is its belief that the fact of harvesting was a material factor in Watts' decision concerning partition of the property. See Edmark Motors, Inc., 111 Idaho at 849, 727 P.2d at 1277 (affirming the jury's implicit finding of materiality after noting that the plaintiffs had testified that their dealership would not have accepted in trade a vehicle that had come from an auto auction). There is substantial, competent evidence supporting the district court's implicit finding of materiality.

B. Reliance

Krebs claims that he had to make some affirmative allegation before Watts had a right to rely on his nondisclosure and, because he made no such allegation, Watts had no right to rely on his failure to disclose the fact of harvesting. Krebs cites to Snow's Auto Supply, Inc. v. Dormaier, 108 Idaho 73, 696 P.2d 924 (Ct.App.1985). However, this case did not involve an allegation of fraud by nondisclosure; it involved a claim for intentional misrepresentation.

In G & M Farms this Court addressed the issue of fraud by nondisclosure, noting that "[f]raud may be established by silence where the defendant had a duty to speak.... A duty to speak arises in situations where the parties do not deal on equal terms or where information to be conveyed is not already in possession of the other party." 119 Idaho at 521, 808 P.2d at 858. The Court of Appeals has summarized the elements:

A duty to disclose may arise when (a) a party to a business transaction is in a fiduciary relationship [or other similar relationship of trust and confidence] with the other party; or (b) disclosure would be necessary to prevent a partial or ambiguous statement of fact from becoming misleading; or (c) subsequent information has been acquired which a party knows will make a previous representation untrue or misleading; or (d) a party knows a false representation is about to be relied upon; or (e) a party knows the opposing party is about to enter into the transaction under a mistake of fact and because of the relationship between them or the customs of trade or other objective circumstances would reasonably expect a disclosure of the facts.

Saint Alphonsus Reg'l Med. Ctr., Inc. v. Krueger, 124 Idaho 501, 508, 861 P.2d 71, 78 (Ct.App.1992) (citing RESTATEMENT (SECOND) OF TORTS § 551(2)).

Generally, a cotenant in possession is presumed to hold for all of the cotenants and not adversely. Chapin v. Stewart, 71 Idaho 306, 310, 230 P.2d 998, 1000 (1951); Fairchild v. Fairchild, 106 Idaho 147, 151, 676 P.2d 722, 726 (Ct.App.1984). The duty to hold property for all of the cotenants necessarily gives rise to a relationship of trust and confidence between the cotenants, which in turn gives rise to a duty to disclose. See RESTATEMENT (SECOND) OF TORTS § 551 cmt. f (1977) (a relationship of trust and confidence which gives rise to a duty to disclose includes the relationship between tenants in common); Uptegraft v. Dome Petroleum Corp., 764 P.2d 1350 (Okla.1988) (cotenants of an estate in land stand in relation to each other of trust and confidence and neither will be permitted to act in hostility to the other in reference to joint estate). Watts had a right to rely on Krebs' duty to disclose all material facts within his knowledge that may have been important to her decision to partition the...