West v. Carlson, 890173

• Decision Date: 27 March 1990
• Docket Number: No. 890173,890173
• Parties: Paul WEST and Mary West, husband and wife, Plaintiffs, Appellees and Cross-Appellants, v. Gary CARLSON and Jean Carlson, husband and wife, Defendants, Appellants and Cross-Appellees. Civ.
• Court: North Dakota Supreme Court

Page 307

454 N.W.2d 307 Paul WEST and Mary West, husband and wife, Plaintiffs,
Appellees and Cross-Appellants,
v.
Gary CARLSON and Jean Carlson, husband and wife, Defendants,
Appellants and Cross-Appellees. Civ. No. 890173. Supreme Court of North Dakota. March 27, 1990.

Page 308

Wegner, Fraase, Nordeng & Johnson, Fargo, for plaintiffs, appellees and cross-appellants; argued by Mervin Nordeng.

Garaas Law Firm, Fargo, for defendants, appellants and cross-appellees; argued by Jonathan T. Garaas.

MESCHKE, Justice.

Gary and Jean Carlson appealed from a judgment awarding Paul and Mary West $93,680 plus interest for deceit and for breach of contract. The Wests cross-appealed from the court's refusal to rescind the contract. We affirm.

The Wests owned 400 acres in Cass County, North Dakota. The Carlsons owned the 26 acres and house on lot 23 in Gallatin County near Bozeman, Montana, and were purchasing the 20 adjacent acres on lot 19 by contract for deed with Homestead Land and Cattle Company. On March 25, 1985, a written agreement between the Carlsons and the Wests [Carlson-West agreement] agreed to the exchange of these properties.

Pursuant to this agreement, the Wests conveyed their 400 acres to the Carlsons in exchange for Lot 23A (Lot 23 minus the house and six acres), $60,000, and an assignment of the Carlsons' right, title and interest in a January 30, 1985 agreement with Daniell Henderson [Carlson-Henderson agreement] wherein the Carlsons sold Henderson the house and the six acres from lot 23 for $122,800 and Henderson assumed the balance of $26,500 on the Carlsons' contract for deed with Homestead for lot 19. The Carlsons' interest in the Carlson-Henderson agreement essentially consisted of receiving monthly payments from Henderson of $1,181.34 from April 1985 until April 1995 when the balance of $105,000 was due. According to the Wests, they received assurances from

Page 309

the Carlsons that Henderson would not have any trouble making the payments.

The Wests received Henderson's monthly payments from April through July 1985. However, in February 1985 Henderson had trouble with the septic system and learned that it was not on the same tract of land as the house. Henderson later learned that the house, which was supposed to be on lot 23, was on the property line between lot 23 and lot 19. In July 1985 the well for the house went dry. Henderson did not make any payments after July 1985, and he moved out of the house. In December 1985 Henderson sued the Carlsons and the Wests, as assignees of the Carlsons' interest, for rescission and the Carlsons for damages in Montana state court. The Carlsons settled with Henderson, resulting in a dismissal with prejudice, and the Wests defaulted.

In July 1987, the Carlsons, the Wests, and Henderson agreed to sell the six acres and the house plus the 20 acres in lot 19 to Edward Fenlason. Fenlason paid $95,000 for the property. After subtracting $31,000 remaining on the Carlsons' contract for deed with Homestead for lot 19 and $5,600 for the cost of the sale, the amount Wests realized on the sale to Fenlason was $58,400.

The Wests sued the Carlsons in North Dakota, seeking rescission of the Carlson-West agreement because of fraud and failure of consideration. Alternatively, the Wests sought monetary damages for breach of contract or for deceit. After trial, the court refused to rescind the agreement, finding that the actions of the parties prior to trial made that remedy impossible. However, the court found that the evidence established a breach of contract and also clearly and convincingly established deceit. The court found that the Wests would have received $152,080 under the assignment of the Carlsons' interest in the Carlson-Henderson agreement ($122,460 in principal plus $29,620 in interest) and awarded the Wests $93,680 ($152,080 minus $58,400 realized in the sale to Fenlason), plus prejudgment interest and costs. The Carlsons appealed, and the Wests cross-appealed.

In their cross-appeal, the Wests contended that the trial court erred in determining that the actions of the parties prior to trial made rescission impossible. They argued that rescission was appropriate because they could restore to the Carlsons the $60,000, Lot 23A, and the money from the sale to Fenlason.

A person who has been fraudulently induced to enter into a contract may either rescind the contract, or retain the benefits of the contract and obtain damages for injuries from the fraud. Lanz v. Naddy, 82 N.W.2d 809 (N.D.1957). The right to rescind a contract is governed by NDCC 9-09-01 through 9-09-04. Blair v. Boulger, 358 N.W.2d 522 (N.D.1984). Under NDCC 9-09-04, rescission is proper only if the party seeking rescission uses reasonable diligence to rescind promptly and to return everything of value which was received under the contract. E.g., Holcomb v. Zinke, 365 N.W.2d 507 (N.D.1985). Restoration of the preceding status quo is a requirement for rescission.

We agree with the trial court that the actions of the parties prior to trial made rescission impossible. At the time of trial the Wests could not restore the Carlsons to their original status because the property which was the subject of the assignment of the Carlsons' interest had been sold to Fenlason. That transaction made restoration of the status quo impossible.

In their appeal, the Carlsons contended that the trial court's award of damages was based upon an erroneous conception of the law of fraud and deceit. They argued that in this type of case damages are sustainable only if there is a finding of actual fraud, which requires an intent to deceive. They asserted that, because the evidence presented at trial and the findings of fact do not establish an intent to deceive, the trial court erroneously awarded damages for constructive fraud, which does not require an intent to deceive.

Page 310

We conclude that the evidence and the findings of fact established actual fraud ¹ under NDCC 9-03-08:

Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:

1. The suggestion as a fact of that which is not true by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though he believes it to be true;

3. The suppression of that which is...