Alexander Myers & Co. v. Hopke

565 P.2d 80, 88 Wash. 2d 449, 1977 Wash. LEXIS 773

• Court: Washington Supreme Court
• Decided: April 21, 1977
• Docket: 44124
• Status: Published

Opinions

Horowitz, J.

Plaintiff Alexander Myers & Company, Inc., brought suit against defendants Charles A. Hopke and Romilda v. Hopke, husband and wife, for reformation of a contract for plaintiff's purchase of a tract of land near Anacortes, Washington. Plaintiff claimed defendants misrepresented the acreage, and asked the court to reform the contract to reduce the purchase price and contract payments accordingly. The trial court granted the relief requested. Defendants appealed.

The Court of Appeals, Division One, in Alexander Myers & Co., v. Hopke, 14 Wn. App. 354, 541 P.2d 713 (1975), reversed the trial court by a 2-to-l decision, and ordered the case remanded to permit plaintiff to elect either rescission or damages. The court held that reformation is not a proper remedy when fraud induces formation of a contract. Defendants appeal the decision to this court pursuant to CARO A 50(e). We affirm the judgment of the trial court but upon different grounds as later stated.

The evidence, which requires a somewhat detailed review, shows the following facts. Defendants owned an unimproved and irregularly shaped tract of land near Anacortes, Washington. They did not know the acreage of the tract, nor was there anything on the ground to indicate the exact boundaries.

In early 1969, Norris M. Estvold, a real estate broker, on his own contacted defendant Charles Hopke to ask him if he would be interested in selling the tract in question. Hopke replied yes, if the price was right. As to the acreage of the tract, Hopke told Estvold that he didn't know for sure, but thought it was about 70 acres.

Later, Estvold met in his office with Beryl Barker, an associate broker and sales manager of a real estate agency which had as an account the plaintiff, a Washington corporation. Barker testified that during this meeting Estvold called Hopke on the telephone to discuss a possible sale of the property. As to the price, Barker testified, "It was $2,000 an acre at that point..."

Barker then returned to Seattle and discussed the property with Richard Myers, then vice-president of the plaintiff corporation.

Estvold testified that after further negotiations with Barker, he went by himself to see Mr. Hopke. Hopke told him he wanted to net $2,000 an acre from the sale. Since the costs of the sale were estimated at $200 an acre, Estvold testified, this made the price $2,200 an acre.

Estvold later told Barker that $2,200 an acre would be a likely acceptable price to defendants. Barker, Estvold testified, replied that "he felt that his buyer would go the $2200 or the $154,000 [70 x $2200], or whatever."

A first earnest money agreement dated February 14, 1969, was then prepared either by Barker or plaintiff. It included, immediately following the legal description, the sentence: "Total parcel contains 70 acres more or less." The sentence was included, Barker testified, "because that property at that point was understood to be 70 acres by me." Barker testified he had no independent knowledge of the acreage and had been told it was 70 acres by Estvold and in conversation with Mr. Hopke. The price of the property was fixed in the agreement at $154,000. There was no per-acre price mentioned. However, the agreement did provide: "Purchase price to be adjusted at the rate of $2,200 per acre in event survey reveals more or less than 70 acres."

The first earnest money agreement was signed by Richard Myers. Defendants refused to sign it because they wanted a higher interest rate on the unpaid balance of the purchase price. After agreement was reached on the interest rate, a second earnest money agreement, dated March 3, 1969, was drawn up by Estvold. It was identical to the first except for the interest rate and new provisions giving the seller 30 days to remove certain timber from the property and reserving a right-of-way for a third party. Estvold first took the second earnest money agreement to defendants. Mr. Hopke testified that he objected to the price adjustment clause, and told Estvold he wanted a firm price on the real estate because the tract might be more or less than 70 acres. He testified that he told Estvold "I had no idea what was in there." Defendants then deleted with red ink the price adjustment clause. Defendants initialed the change and signed the agreement on March 7, 1969. The sentence stating the parcel contains 70 acres moré or less was not deleted.

Mr. Hopke's statement to Estvold that there may have been less than 70 acres in the tract was apparently never communicated either to Barker or Richard Myers. Barker testified this question never came up in his conversations with Estvold, and that their understanding had always been that the tract was 70 acres. Richard Myers also testified he was aware of the deletion, but that he "understood there were 70 acres" and had "always assumed there was 70, give or take an acre."

On April 22, 1969, a formal real estate contract was signed by defendants and plaintiff. It makes no reference to acreage. It contains a legal description of the property and sets the price at $154,000. Plaintiff paid $38,000 down, followed by five installments of $7,000 each from November 6, 1969, to November 8, 1971. In early 1972, plaintiff was informed the parcel contained 55 and not 70 acres. Plaintiff then commenced this action. A survey made in October 1972 revealed the tract contained only 50.99 acres (27.16 percent less than 70).

The case was tried to the court, which found defendants unintentionally misrepresented to plaintiff that the parcel contained 70 acres more or less. The representation was made through defendants' execution of the second earnest money agreement and during negotiations by defendants' agent Estvold. The court also found plaintiff entered into the contract in justifiable reliance upon the representation, since the parcel had no visible boundaries and plaintiff had no actual knowledge of the acreage. The court held the contract should-be reformed to reduce the purchase price in an amount equal to the deficiency in acreage, namely 19.01 acres, multiplied by the per-acre price of $2,200 contemplated by the parties. The semiannual payments were reduced from $7,000 to $5,000.

Defendants first contend the trial court erred in finding them bound by acreage representations made by Estvold, because the record contains no evidence (1) there existed an agency relationship between Estvold and defendants, (2) defendants authorized Estvold to represent the tract as containing 70 acres, or (3) Estvold in fact made the representation in question to plaintiff or Barker.

We first note that defendants' own representation in the second earnest money agreement that there were 70 acres more or less in the tract, in ignorance of its truth, is deemed fraudulent even in absence of intent to deceive, and is itself sufficient evidence to uphold the finding of a misrepresentation inducing formation of the contract. See Webster v. L. Romano Eng'r Corp., 178 Wash. 118, 120-21, 34 P.2d 428 (1934); Arrowsmith v. Nelson, 73 Wash. 658, 666-67, 132 P. 743 (1913); Annot., 1 A.L.R.2d 9, 89-95 (1948). Evidence of misrepresentation by an agent of defendants is therefore cumulative at best. We will nevertheless briefly consider defendants' arguments.

First, the evidence leaves no doubt an agency relationship existed between Estvold and defendants. When a realty agent obtains oral authority from the owner to find a purchaser for property, a principal and agent relationship is created. Ewing & Clark, Inc. v. Mumford, 157 Wash. 617, 620, 289 P. 1026 (1930). Here, the evidence permits no other conclusion than that defendants knew Estvold was a real estate broker, and permitted him to find and negotiate with plaintiff's real estate broker for the sale of the tract. Clearly the sale resulted from Estvold's efforts as a real estate broker. The finding of the trial court as to agency is supported by substantial evidence.

Secondly, an explicit authorization from defendants was unnecessary for Estvold to make a binding representation as to the acreage of the tract. The scope of the authority of a real estate broker who is engaged only to find a purchaser includes at least authority to state the area of the parcel when the area and boundary lines, as in the instant case, are not apparent from inspection. Yarnall v. Knickerbocker Co., 120 Wash. 205, 209-10, 206 P. 936 (1922); Weinstein v. Sprecher, 2 Wn. App. 325, 327-29, 467 P.2d 890 (1970); F. Mechem, Outlines of the Law of Agency 92 (4th ed. 1952). Since it is clear defendant entrusted Estvold not only with obtaining a purchaser but with all negotiations up to the sale itself, he certainly had authority to state the acreage of the tract.

Lastly, the trial court could reasonably find Estvold made representations to plaintiff's agent Barker that the tract contained 70 acres. Barker testified he had no independent knowledge of the size of the tract, and had inserted the sentence describing it as containing 70 acres more or less in the first earnest money agreement because Estvold had told him the tract was 70 acres. The credibility of Barker's testimony was for the trial court to determine. In re Sego, 82 Wn.2d 736, 739-40, 513 P.2d 831 (1973).

Defendants next contend plaintiff had no right to rely upon acreage representations made by them or Estvold. They argue the deletion of the price adjustment clause in the second earnest money agreement was a negation of all prior representations of acreage. Again, we cannot agree. As the Court of Appeals states, we have held reliance by the purchaser upon misrepresentations of acreage by the vendor justifiable when the boundaries were not reasonably ascertainable and the purchaser could not have determined them without a survey. Dixon v. MacGillivray, 29 Wn.2d 30, 36, 185 P.2d 109 (1947). The circumstances in the instant case come within the rule as stated in Dixon. The additional fact of the deletion in question does not require, as a matter of law, a different conclusion. If in deleting the price adjustment clause in the second earnest money agreement (as drafted by Estvold and signed by defendants); defendants intended to negate prior representations as to acreage, why did they not also delete in the same document the sentence, "Total parcel contains 70 acres more or less"? Plaintiff might reasonably have concluded from the deletion that defendants intended no more than to reject a provision providing the purchase price be adjusted upward or downward for slight or minor variations which might be later found to exist in the actual acreage of the parcel. See Arrowsmith v. Nelson, supra at 666-67. The trial court's finding on the element of justifiable reliance is therefore supported by substantial evidence. Sigman v. Stevens-Norton, Inc., 70 Wn.2d 915, 919-20, 425 P.2d 891 (1967).

Defendants' last contention is that the evidence does not support the trial court's finding that the sale was of a specified quantity of land (70 acres) and not a sale in gross. Whether a sale of land is in gross or by the acre depends upon the intention of the parties as determined from the particular circumstances of each case. In this case, testimony of both Estvold and Barker reveals the price of $154,000 was reached by multiplication of the number of acres supposedly contained in the tract (70) by the agreed price of $2,200 per acre. Evidence that the price has been arrived at in this manner is substantial evidence to support a finding of the trial court that the sale was not in gross. Dixon v. Morse, 93 Idaho 448, 451, 463 P.2d 284 (1970); see Annot., 1 A.L.R.2d 9, 31-32 (1948). In addition, we have held that when the buyer, as here, justifiably relies upon an actual representation of the quantity of land as a fact, the sale will not be in gross. Arrowsmith v. Nelson, 73 Wash. 658, 667, 132 P. 743 (1913)(statement tract contains "forty acres more or less" was, under circumstances, representation of quantity as a fact).

We therefore agree with the Court of Appeals that the trial court's finding of fraudulent misrepresentation is supported by substantial evidence.

The remaining question is whether the trial court applied the correct measure of damages in this case. Although we agree with the Court of Appeals that reformation of the contract was not the proper remedy in this case, nevertheless the result reached by the trial court — abatement of the purchase price and contract payments based upon the deficiency in the acreage and the agreed upon price per acre— is correct.¹

A similar situation arose in Ready Sand & Gravel Co. v. Cornett, 184 Neb. 726, 171 N.W.2d 775 (1969). In that case, defendant represented the property as containing 125 acres. Subsequent to the execution of the sales agreement, a survey showed the parcel contained 119.15 acres. In addition, in a subsequent and separate suit, it was decreed that a third party was the owner of an additional 5.92 acres of the parcel. The vendee, as in the instant case, brought suit in equity to reform the sales agreement and to reduce the purchase price accordingly. Defendant asserted as a defense that where a mistake of the parties in conveying real estate relates to the identity of the property itself, rather than to its description in the contract, reformation cannot be had. The trial court held for defendant. The Nebraska Supreme Court, in reversing the trial court, held that whether or not an action for reformation of the contract for the sale of real estate was established by the evidence, the petition stated a cause of action for equitable relief. "The petition filed in the instant case resembles a suit for specific performance by the purchasers with abatement of the purchase price." Ready Sand & Gravel Co. v. Cornett, supra at 733.

The holding in the above case is in accord with the general rule as stated in Annot., 153 A.L.R. 4, 34-35 (1944):

[WJhere in a sale of land at a specified rate per acre or other area unit the parties are mistaken as to the quantity of the land sold, in that it contains a lesser quantity

than contemplated by the parties, and such mistake affects the computation of the purchase price as made by the parties, the purchase price will be abated at the instance of the vendee, even though the shortage in acreage is small.

Courts have held that the abatement of purchase price, at least when the acreage is uniform and unimproved, may be measured by the agreed price per acre multiplied by the number of acres in the deficiency. Drake v. Eubanks, 61 Ark. 120, 32 S.W. 492 (1895); Denman v. Stuart, 142 Tex. 129, 176 S.W.2d 730 (1944); Hyde v. Phillips, 61 Wash. 314, 316, 112 P. 257 (1910); Restatement of Contracts § 365 (1932); Restatement of Restitution § 21 (1937); C. McCormick, Damages 699 (1935).

In the instant case, therefore, the trial court did not err in abating a proportionate part of the purchase price, measured as the agreed price per acre ($2,200) multiplied by the deficiency in the acreage (19.01 acres).²

Although plaintiff, having proved fraudulent misrepresentation, would ordinarily have the right to additional damages for any lost benefit of the bargain (Salter v. Heiser, 39 Wn.2d 826, 832, 239 P.2d 327 (1951); 1 F. Harper & F. James, Jr., The Law of Torts 592 (1956)), plaintiff in oral argument before this court in effect waived any such right. It asked this court to accept the measure of damages awarded by the trial court and thus avoid retrial of the damage issue. Under these circumstances, therefore, we need not remand this case for any further determination by the trial court. See Austin v. Dunn, 176 Wash. 453, 29 P.2d 740 (1934).

The judgment of the trial court is affirmed.

Rosellini, Hamilton, Utter, and Dolliver, JJ., concur.

1 We do not agree with the Court of Appeals that plaintiff, never having requested it, is now entitled to elect rescission as an alternative remedy. The original complaint prayed for both damages (the excess in installments already paid over the proper amount) and reformation, and the reformation asked— abatement of the purchase price — was in substance a suit for specific performance with abatement of the pinchase price. Ready Sand & Gravel Co. v. Cornett, 184 Neb. 726, 171 N.W.2d 775 (1969). Under these circumstances, plaintiff, never requesting amendment of its complaint, in effect elected to affirm the contract and waived its right to rescind. Salter v. Heiser, 39 Wn.2d 826, 833, 239 P.2d 327 (1951); Pronger v. Old Nat'l Bank, 20 Wash. 618, 626, 56 P. 391 (1899).

2 Nor should the case be remanded to permit defendants to obtain a reduction in the abatement if the agreed price per acre is more than the market value per acre. As stated by Professor McCormick:

In any event, it seems that the aggrieved purchaser, if he prefers, should be allowed to have his claim measured by the proportion of the price, and the defaulting vendor should not be allowed to insist that he should be liable for less because the buyer made a bad bargain.

C. McCormick, Damages 699 (1935). We believe this rule is more consonant with the primary aim in awarding damages in contract cases, which "is to place the injured party in as good a position as if he had received full performance." Prier v. Refrigeration Engr Co., 74 Wn.2d 25, 30, 442 P.2d 621 (1968).