Summary
holding that fraud as a basis for contract reformation can be based on either willful or innocent misrepresentations
Summary of this case from Henning v. AhearnOpinion
Nos. 608, 609 (1974).
Argued October 30, 1975. —
Decided November 25, 1975.
APPEAL from judgments of the circuit court for Kenosha county: EARL D. MORTON, Circuit Judge. Affirmed.
For the appellants there was a brief by Foley Capwell, S.C. of Racine, attorneys, and Phillips, Richards Mayew of Kenosha, of counsel, and oral argument by Rex Capwell.
For the respondents there was a brief by Vaudreuil Vaudreuil of Kenosha, and oral argument by Leo L. Vaudreuil.
These are actions to reform two trustee's deeds for the sale of real estate.
The First National Bank of Kenosha (hereinafter "bank") was trustee of the testamentary trust established by the will of John J. Tanner, deceased spouse of appellant Marie J. Tanner. Under the trust provisions, the bank held legal title to real estate composing the trust; it was empowered to sell or otherwise transfer such property, subject to the approval of Mrs. Tanner so long as she was alive.
Part of the trust property consisted of the Tanner residence, surrounding unimproved lands containing a garage and barn, and an adjacent improved area operated as the Tanner Mobile Home Park (hereinafter "park"). The bank, with Mrs. Tanner's approval, intended to sell the park with either much of the adjacent unimproved land or with certain property fronting the park across a roadway. Respondent Phillip B. Scalzo, a local mobile home salesman and trailer park operator, became aware of this purchase opportunity through the Tanner park manager, Mr. DuPont. Scalzo and his wife made various offers to purchase the park and the adjacent unimproved land. One such offer was accepted and the sale was accomplished on March 18, 1971.
Prior to making any offers to purchase, Scalzo had walked over the entire property with DuPont. DuPont had walked over the entire property with a bank officer on a similar tour for an earlier prospective purchaser and he believed he was to do the same with all interested parties. Copies of an old plat of the Tanner property were left with him for such prospects.
Scalzo testified to a second tour with DuPont in which they used a 100-foot tape measure, measuring the description on the plat from old stake markers. The proposed sale area was outlined and it included the areas now in dispute. The legal description in the offer to purchase and the plat copies, held by DuPont and also distributed by the bank, both came from an older survey used by the bank.
Scalzo had met with a Mr. Miller, the bank officer authorized to arrange the sale. Miller had supplied the plats used for the purchase offer and he informed Scalzo that Mrs. Tanner had to approve the sale. Scalzo testified that he had been told her signature was necessary to prevent "trouble in the future."
The respondent also met with Mrs. Tanner at her residence to discuss related aspects of the sale, such as her continued use of a well in the park area and the plowing of her road off her property. She testified that they walked out to the unimproved area and that she showed him a southernmost fence that was to mark the boundary of her retained land. There was an extensive fence just north of the park area, bounding a wide area south and west of the residence. There was also a shorter length of fence, close to the residence at a grape arbor southwest of the house. Scalzo recalls only that she gestured to the south when describing a fence as the boundary and that they did not leave the residence.
A subsequent meeting at the residence involved Mrs. Tanner, Scalzo and Miller. Miller testified that he orally outlined the boundaries, including noting that one boundary was west of the house and garage and that the south boundary was "parallel to a fence line." Some discussion about removing items from a barn that was behind the garage and definitely in the sale property was also had. Mr. Scalzo recalls the meeting and a discussion on the barn; he had no recollection as to a boundary discussion. Mrs. Tanner also recalled no conversation as to boundaries at that meeting.
Scalzo had the impression that Mrs. Tanner believed that she would have substantial property retained from the sale. Although the respondent "wasn't really concerned because he wasn't buying the property from her," he did approach the bank's Miller and offered to pay half the costs of a survey. Mr. Miller later advised Scalzo that she had refused. Mrs. Tanner denied ever having been told of Scalzo's offer.
In May after the sale, Scalzo had his new land purchase surveyed and staked. He noted that the survey conformed to his earlier tours of the sale area. Mrs. Tanner notified the bank that the marked boundaries cut across areas believed by her not to be part of the sale. The bank subsequently informed Scalzo that a mistake had been made in regard to the legal description of the unimproved property involved. One area, directly west of the Tanner residence and including the garage, was claimed to be retained with the residence as an area excepted from the grant. Another area alleged to be transferred by error was a larger plot south of the residence and garage areas and north of the trailer park. Mrs. Tanner believed that the southern boundary of her retained land was to be at the fence near to the trailer park; the line on the conveyance seemed closer to the short fence near the house. The bank offered to substitute a deed of its intended transfer. Scalzo in turn offered to sell back all the unimproved areas for cost ($52,000) plus expenses incurred. The disputed area was approximately two and one-half acres out of thirteen and one-half acres. As a counteroffer, the bank proposed that the entire transaction be rescinded. No agreement could be reached.
The bank commenced suit for reformation of the deed on the basis of mutual mistake as to the western plot. Mrs. Tanner brought a similar action for the southern plot, with the bank joined as a co-plaintiff solely on the basis of its legal ownership prior to transfer. Trial was had to the court. In dismissing the actions on their merits, the trial court stated that mutual mistake had not been demonstrated; further, while questioning the propriety of post-trial contentions that the reformation could be sustained on the basis of a nonpleaded theory of fraud, the court stated that fraud had not been established either. Plaintiffs appeal from the judgments.
Two issues are presented on this appeal:
1. Could the trial court properly consider the equitable remedy of reformation on the basis of allegations of fraud not raised prior to trial?
2. Was there a basis for reformation?
Additional remedy.
Although the trial court indicated that it did not have the authority to consider allegations not pleaded or specifically cited until the post-trial briefs, it did consider the question of fraud as a basis for equitable relief. It is unclear whether the court considered that the issue had been properly raised without prejudice to the defendant. Since fraud was not found to exist, no finding was made on the propriety of considering the issue.The pleadings state that relief was requested on the basis of mutual mistake. At common law, the bill in equity was given stringent analysis:
"No principle of equitable jurisprudence is better settled than that the complainant must recover, if he recover at all, upon the case made by his bill. The proofs must correspond with the allegations made, and must sustain the statements and charges set forth in the bill, or no relief can be granted, however strongly the proofs may show that he is entitled to some relief." Flint v. Jones (1856) 5 Wis. 424, 427.
Procedural distinctions between legal and equitable actions in Wisconsin have been abolished, sec. 260.08, Stats., and variance between pleadings and proof is currently controlled by sec. 263.28:
"Variances, materiality. (1) No variance between the allegation in a pleading and the proof shall be deemed material unless it misleads the adverse party to his prejudice. Whenever it shall be proved to the satisfaction of the court that a party has been so misled, and in what respect he has been misled, the court may order the pleading amended upon such terms as may be just.
"(2) When the variance is not material, the fact shall be found in accordance with the evidence and the court may order an amendment without costs."
The appellants contend that sec. 263.28, Stats., allows disregarding a variance between the allegation in a pleading and the proof submitted when no objection is made to such proof.
Respondents direct attention to another statute that should also be considered on the topic of proof variance from pleadings. Sec. 263.31, Stats., provides that when the allegation of a cause of action is unproved in its entire scope or meaning, a failure of proof rather than variance under sec. 263.28 results. This section, however, must be read in conjunction with sec. 269.52 which, as interpreted in Dully v. Scott (1940), 235 Wis. 142, 148, 292 N.W. 273, 129 A.L.R. 487:
". . . softens the rigor of sec. 263.31, and renders it inapplicable in cases where evidence received without objection and not denied and not claimed to be subject to refutation, constitutes a cause of action other than that stated in the complaint."
In this case the record is barren of any indication that a motion to amend the pleadings was made. The claimed new basis for the equitable remedy was raised in a post-trial brief, which for argument purposes can be taken as an indirect request for an amendment. Such proposed change was not the correction of a mere "variance" but was in reality an alternative theory of remedy based partially on the plaintiff's failure to prove mutual mistake and based partially on Scalzo's strong refutation of any shared misconception of the boundaries of the transferred property. Thus the proper statutes and their fostered case law to be considered are secs. 263.31, 269.52 and 269.44, Stats.
Wipfli v. Martin (1967), 34 Wis.2d 169, 148 N.W.2d 674, established that an amendment would not be allowed if it prejudiced the defendant. This unfairness could take the form of confrontation by issues of which it was unaware or unprepared to challenge. In such cases, the amendment could be denied or granted with a continuance for the defendant's preparation. Attempts to amend after the trial present unique problems of prejudice that cannot be cured and may dictate the necessity to refuse the amendment. See: Johnson v. Chemical Supply Co. (1968), 38 Wis.2d 194, 205, 206, 156 N.W.2d 455.
In regards to Mrs. Tanner's suit for recovery of the southern plot, Scalzo indicated in a pretrial deposition that he was aware of the boundaries as listed on the offer to purchase and that he relied on them. He did admit that he believed Mrs. Tanner had a possible misconception of the extent of the land enumerated by the legal description, but only by inference from her conversation. In refuting the allegation that he shared Mrs. Tanner's mistake as to the extent of the land sold, Scalzo's trial testimony strongly reiterated his reliance on the legal description and repeated his awareness of Mrs. Tanner's possible error. Since the trial court refused to sustain the allegation of mutual mistake, the plaintiffs in this suit are attempting to seize Scalzo's trial testimony refuting mutual mistake and turn it into a claim for fraud. This posture was known to them prior to trial. As an alternative theory of remedy, it could have been offered as an amendment at a time when Scalzo would be warned to more thoroughly explain the nature of his impressions. It would have alerted him to explain his reliance on the legal description and officers of the bank as Mrs. Tanner's agents rather than attempt to clarify her possible error.
As for the western plot, there is no evidence on the record that demonstrates Scalzo would be prejudiced by the added theory. This is so, however, because there is no evidence that such a theory could aid the plaintiff bank. Scalzo at all times has given testimony that he knew the garage area was within the property sold. The bank produced agent witnesses who testified to a statement by Scalzo, after the sale, of surprise that this plot was within his purchase. He denied ever saying this and the trial court agreed with his version. There is no testimony indicating that prior to the sale Scalzo knew that such property was not to be transferred and that he deliberately refrained from indicating an error in the legal description. The bank's proffered testimony in fact was that Scalzo evidenced surprise, but no implication of fraud on his part arises from their failure to prove this allegation. Scalzo's denial is consistent with his assertions that he believed the garage area to be within his purchase. Testimony as to an explanation to the contrary in his presence was refuted not only by him but by Mrs. Tanner.
In this latter case, the fraud theory is totally unproved. Such a theory is more applicable to Mrs. Tanner's suit although prejudice to the defendant is more potential by the failure to timely acquaint him with that allegation. The trial court, however, did consider the issue and found that it was unsupported; thus no need arose to consider the detriment to Scalzo by its consideration. We think the trial court's conclusion was correct.
Reformation.
It was on the alleged post-sale surprise of Scalzo that the bank based its reformation claim as to the garage area. Mutual mistake is, of course, a basis for the equitable remedy of reformation. Kovacs v. Hoag (1953), 263 Wis. 139, 141, 142, 56 N.W.2d 829; Hanbury, Modern Equity (1957), ch. 26, p. 609. The trial court determined that the plaintiffs had not sustained their burden of proof, evidently disagreeing with the bank witnesses' appraisals of Scalzo's knowledge as to the garage area. In equity cases, the test on review is whether the findings made are contrary to the great weight and clear preponderance of the evidence. Nagle Motors v. Volkswagen N.C. Distributor (1971), 51 Wis.2d 413, 423, 187 N.W.2d 374. The bank abandoned any attempt to reassert mutual mistake on such slim proof.They have proposed the alternative theory of mistake on their part and fraud on the part of Scalzo. See: Langer v. Stegerwald Lumber Co. (1952), 262 Wis. 383, 391a, 55 N.W.2d 389, 56 N.W.2d 512; Hanbury, supra, at page 604.
As mentioned, there is not sufficient evidence to support this remedy for the western area. Scalzo's testimony concerning his inference of error on Mrs. Tanner's part is mainly directed to the southern plot and is too vague to raise an inference about the garage area. Although there was testimony that a boundary discussion, including the western boundary, was had prior to the closing, Scalzo could not recall it and plaintiff Tanner denied it. Some inference is urged by the natural tie of the garage to the house and its insurance with the house, but this would hardly establish fraud.
The fraud being alleged is not the equivalent of the tort action for deceit, of course. Fraud as a basis for equitable relief can be maintained from either willful or innocent misrepresentations. Prosser, Law of Torts (4th ed.), pp. 687, 688, sec. 105. The trial court acknowledged the split nature by referring to "actual" or "constructive" fraud and definitely concluded that the former was not involved.
This overlapping "fraud" is most strongly raised in reference to the southern plot. Scalzo admitted that he, as well as DuPont, had the impression that Mrs. Tanner was in error as to the amount of land south of her house that would be excluded from the sale. Since he was informed that she had to approve the sale, appellants place great reliance on sec. 505, Restatement, 2 Contracts:
"Except as stated in secs. 506, 509-511, if one party at the time of the execution of a written instrument knows not only that the writing does not accurately express the intention of the other party as to the terms to be embodied therein, but knows what that intention is, the latter can have the writing reformed so that it will express that intention." (Emphasis added.)
No mention is made, however, of the included sec. 511:
"It is essential in order to obtain a decree rescinding or reforming a written conveyance, contract, assignment or discharge for mistake, that the facts necessary for the allowance of the remedy shall be proved by clear and convincing evidence and not by a mere preponderance."
This is also the burden of proof in Wisconsin. Bailey v. Hovde (1973), 61 Wis.2d 504, 509, 511, 213 N.W.2d 69; Wisconsin Jury Instructions — Civil, Part I, 205.
This burden of proof problem becomes particularly troublesome because of the failure of the plaintiffs to raise this theory until after the evidence was adduced. It is clear that Mrs. Tanner did not agree with the boundaries established by the conveying deed. Scalzo admits to an impression that she was in error. The appellants characterize these facts as placing a duty on Scalzo to Mrs. Tanner and the failure to meet this duty equates with equitable fraud.
Even in such a simplistic structure, we find it difficult to reach that conclusion. The initial correct postulate is that silence can be a form of equitable fraud. Hanbury, supra, at 625. It often is a form of legal deceit also, especially where vendors of goods are involved. Olson v. Skroch (1924), 182 Wis. 448, 196 N.W. 767. The plaintiffs, however, are seeking to impose an equitable duty on the purchaser to inform the seller of his possible rather than known errors, or accept the future possibility of equitable action.
While this theory in abstract may be sound, it avoids the factual problems which the burden of proof raises. Scalzo and Mrs. Tanner were not dealing solely with one another. DuPont, the bank's employee and apparent agent as far as Scalzo should be held to know, had physically assisted the defendant in determining the bounded land which undisputedly was at all times held out as for sale and which was listed in the deed and offer to purchase. Scalzo claims little reliance on his dealings with Mrs. Tanner, obviously because the real transaction was being conducted by the bank which had refused his prior offers. No evidence was adduced that the bank shared her mistaken impressions as to the property and demonstrated such mistake to Scalzo also. At trial, the bank officers took the position that the mistake as to the southern area did not involve them. It is not realistic that Scalzo should assume that Mrs. Tanner's professional counselors and trustees of her late husband's trust were ignorant or mistaken as to her wishes, such that he must assume the task of interpreting their own legal description to them or to her. His rejected offer to pay half the cost of a survey, which infers questions as to the exact boundaries of a plot even if not so precisely stated, at least alerted the bank to check the propriety of the legal description.
We conclude, on the facts as adduced, there is no failing on the part of Scalzo which could be construed to be inequitable conduct toward Mrs. Tanner. Fraud must be proved by clear and convincing evidence, and as noted by the trial court, the plaintiffs failed to prove their case. Here the problem resulted from the bank's reliance on its own plat of survey from which the legal description used in the deed was prepared by the bank's counsel.
By the Court. — Judgments affirmed.