Weber v. Rivera

• Decision Date: 12 November 1992
• Docket Number: No. 92-201,92-201
• Citation: 841 P.2d 534,255 Mont. 195,49 St.Rep. 969
• Parties: Brien M. WEBER and Gayle L. Weber, Plaintiffs and Respondents, v. J. George Broady RIVERA and Mary Virginia B. Rivera, Defendants and Appellants.
• Court: Montana Supreme Court

Page 534

841 P.2d 534

255 Mont. 195

Brien M. WEBER and Gayle L. Weber, Plaintiffs and Respondents, v. J. George Broady RIVERA and Mary Virginia B. Rivera Defendants and Appellants.

No. 92-201.

Supreme Court of Montana.

Submitted on Briefs Aug. 6, 1992.

Decided Nov. 12, 1992.

Bryan L. Asay, Kelley & Asay, Helena, for defendants and appellants.

John D. Greef, Hamilton, for plaintiffs and respondents.

HUNT, Justice.

Appellants George and Mary Rivera appeal from the decision of the District Court of the Fourth Judicial District, Ravalli County. This dispute arose out of a contract to buy and sell certain land in Ravalli County, Montana. The District Court refused to grant Riveras' rescission of the contract and awarded respondents, Brien and Gayle Weber, liquidated damages in the amount of $43,000. We affirm in part and reverse in part.

There are two issues before the Court:

1. Was the District Court clearly erroneous in denying Riveras the right to rescind the contract?

2. Did the District Court incorrectly find the liquidated damages clause of the contract valid under Sec. 28-2-721, MCA?

Brien and Gayle Weber listed their ranch property, located in Ravalli County, for sale in June 1990. The Weber family had owned the ranch property since 1911 and had lived in the residence located on the property since 1915. In June 1990, Mary Rivera was shown several properties in the area by a sales representative of a local real estate agency, including the Webers' ranch property. In July 1990, Mary Rivera travelled from California to Montana with her husband George, to again view several properties in the Ravalli County area. The Weber property was one of the properties the Riveras were to view.

The District Court found that prior to viewing the Weber ranch property, George Rivera questioned the sales representative concerning the water used for the residence located on the property. The sales representative replied that although the water would not "test out," the Weber family had been using it for three generations and that to the best of their knowledge no one had ever had any problems. Upon arriving at the property, George Rivera asked Brien Weber about the water. Weber replied that his family had been drinking the water for years without any difficulty, but that it would not test out. It is not clear that the actual source of the water was adequately explained to the Riveras. The Riveras deny that at that time they were told the water would not test out.

On July 17, 1990, the same day they both viewed the property, the Riveras made an offer to purchase the property for $430,000. They then signed a form contract provided and required by United National Real Estate, a national company of which the local real estate agency was a member. The Riveras made an initial deposit of $5000 earnest money at the time they signed the contract. Shortly thereafter, the Webers executed the contract. The contract entered into by the parties had a clause which stated that if either party failed to complete the transaction they would be required to pay to the other party ten percent of the purchase price as "liquidated damages."

In early August 1990, Mary Rivera returned to Montana to obtain water samples for testing. The sales representative told her that she was wasting her time because, as he had previously indicated, the water would not check out. On August 7, 1990, the Riveras received the results of the water tests. The tests indicated the water was contaminated. On August 13, 1990 the Riveras communicated to the sales representative their intent that the contract be voided and that the $5000 deposit be returned. The Riveras then received several letters from the Webers' counsel. The Webers denied making any misrepresentations concerning the quality of the water, but suggested that something could be worked out regarding the costs of putting a well on the property. Additionally, the Webers reiterated that the contract called for a closing date of September 1, 1990, and that they were still willing to close the transaction on that date. The closing did not occur on September 1, 1990.

The Webers brought suit on October 24, 1990, alleging breach of contract and seeking to enforce the liquidated damages clause in the contract. The Riveras filed an answer and counterclaim alleging that the liquidated damages provision was actually an invalid penalty clause. The Riveras raised the affirmative defenses of constructive fraud and mistake of fact. In the counterclaim, the Riveras alleged negligent representation by both the Webers and the sales representative. A bench trial was held on November 22, 1991. The District Court entered judgment for the Webers on March 3, 1992. The court concluded that the Riveras had failed to perform their obligations under the contract and awarded $43,000 in liquidated damages. The Riveras took nothing under their counterclaim. The Riveras appeal.

I

Was the District Court clearly erroneous in denying the Riveras the right to rescind the contract?

The District Court found that the Riveras were not entitled to rescind the contract in question. On appeal, this Court will not disturb the District Court's findings of fact in a bench trial unless they are clearly erroneous. In the Matter of the Mental Health of E.P. (1990), 241 Mont. 316, 787 P.2d 322; Rule 52(a), M.R.Civ.P. This Court will also give due regard to the opportunity of the District Court to judge the credibility of the witnesses. In the Matter of the Mental Health of R.J.W. (1987), 226 Mont. 419, 736 P.2d 110.

The Riveras contend that pursuant to Sec. 28-2-401, MCA, their consent to the contract was neither real nor free because of constructive fraud on the part of the Webers and because of mistake. Section 28-2-1711, MCA, allows a party to rescind a contract if that party's consent was given by mistake or obtained through fraud. The Riveras argue that the quality of the water was misrepresented, either intentionally or unintentionally, prior to the time they entered the contract. They also contend that had they known the true nature of the water on the Weber property they would never have contracted to buy the property. At trial, the parties offered conflicting testimony as to their discussions concerning the water prior to entering the contract.

The Webers and the sales representative testified that prior to entering into the contract, the Riveras were told that although the water would probably not test out, the Weber family had been drinking it without problems for generations. The Riveras testified that they were not given this information until after they had entered the contract. In fact, the Riveras testified that prior to entering into the contract they were led to believe by the Webers that the water was fine. The record does not indicate that the source of the water was clearly explained to the Riveras. However, it was the quality of the water and not its source, which was the basis for the Riveras' decision to seek rescission of the contract.

The resolution of this issue depends upon a factual determination as to what was actually said concerning the water quality prior to the execution of the contract. If the Webers did communicate to the Riveras that the water would not test out, then there is no basis upon which to allow...