Powell v. Nietmann

778 P.2d 340, 116 Idaho 590, 1989 Ida. LEXIS 127

• Court: Idaho Supreme Court
• Decided: August 9, 1989
• Docket: 17549
• Status: Published

Opinions

JOHNSON, Justice.

This appeal concerns a judgment of indemnity granted to the Nietmanns against Reynolds and Van Ooyen (Reynolds). The Nietmanns employed Reynolds, a realtor, to act as their agent to sell real property (the property) located on Lake Pend Oreille. The property was sold to the Powells based on representations by Reynolds that a subsurface septic disposal system could be installed on the property to provide sewage disposal. Rescission was granted to the Powells because no known subsurface, lagoon or mound sewage disposal system could be placed on the property. As part of the rescission, the Nietmanns were required to pay the Powells (1) the amounts that the Powells had paid pursuant to the sale agreement, (2) interest on these amounts, (3) other amounts expended by the Nietmanns while they were in possession of the property and (4) the attorney fees incurred by the Powells in prosecuting the action for rescission. The trial court granted the Nietmanns a judgment against Reynolds indemnifying the Nietmanns for all amounts they were required to pay to the Powells. We conclude that the Nietmanns were entitled to recover from Reynolds the amount of the commission paid to Reynolds, and to be indemnified by Reynolds for (1) the fees paid by the Powells for architectural plans and for site inspection by an engineer and (2) the costs and attorney fees awarded to the Powells against the Nietmanns. We vacate the judgment and remand the case to the trial court for a new judgment in these amounts.

I.

THE BACKGROUND AND PRIOR PROCEEDINGS.

In 1978 the Nietmanns purchased a tract of land on Lake Pend Oreille. They intended to subdivide the land, keeping one lot for themselves and selling the others. In July 1978, the Nietmanns submitted a subdivision plan for seven lots with sewage disposal to be provided by a septic sewage disposal system. In August 1978, this plan was disapproved because the soil conditions “were not suitable for sewage.” In early November 1978,- the local health district notified the Nietmanns that it would not approve a conventional septic tank drain field system for the subdivision, but that it “could possibly approve an adequate engineer designed waste disposal system for two home sites, possibly three.” In late November 1978, a revised subdivision application limiting the subdivision to three lots was considered by the local planning and zoning commission. The planning and zoning commission found that sewage disposal in the subdivision would necessitate “a specially designed system approved by the State” and recommended to the county commission that the subdivision be granted. The subdivision plat was not approved and recorded until May 1980.

In early 1979 the Nietmanns decided to sell two of the lots, one of which was the property at issue here. They employed Reynolds to act as their sales agent. The trial court found that the sewage disposal problems were not discussed between the Nietmanns and Reynolds at the time the Nietmanns gave Reynolds a listing to sell the lots or at any time prior to the sale of the property that is at issue here.

In the late summer and fall of 1979, the Powells were looking for land upon which to build a year-round residence. They became aware that the property was for sale and contacted Reynolds. The Powells informed Reynolds that they wanted a place suitable for construction of a year-round residence and asked Reynolds , if he knew of any problems in that connection that they might encounter on the property. Reynolds said he did not. Reynolds told the Powells not to worry about a septic sewage disposal system, since everyone in the area had one and that one could easily be installed by a local contractor. The Powells asked that a provision concerning the availability of a septic system be included in the agreement for the purchase of the property. Reynolds stated it was not necessary and that he would send them documents to prove that a septic tank system would be approved. Following these assurances, the Powells signed the agreement for the purchase of the property on August 30, 1979. The Nietmanns signed the agreement on September 7, 1979.

On September 4, 1979, Reynolds sent a letter to the Powells stating that he was enclosing “the sub-division report of the lake property showing that it was approved by the county commissioners and the Health Dept, after it was reduced from seven to three parcels.” The enclosures indicated that the local health district had “approved a sewer system” for the subdivision and that sewage disposal would “necessitate a specially designed system approved by the State.” The trial court found that it could not be determined whether or not the Powells received the letter from Reynolds dated September 4, 1979, before the Nietmanns signed the agreement on September 7, 1979. The sale was closed in December 1979.

During the winter of 1980, the Powells employed an architect to prepare plans for a year-round residence on the property. In the spring of 1980, the Powells tried to obtain a sewage disposal permit from the health district. The health district informed the Powells that it would not approve any type of sewage disposal system on the property. After that the Powells used the property approximately one weekend per month throughout the summer months by placing a camp trailer there.

During the summer of 1980, various attempts were made to find a solution to the sewage disposal problem on the property. When these attempts failed, the Powells sent a letter to Reynolds dated December 10, 1980, and a letter to the Nietmanns dated January 15, 1981, both demanding rescission. Rescission was rejected by the Nietmanns on January 21, 1981. In 1981 the Powells sued the Nietmanns and Reynolds for rescission or for damages. The Powells continued to make payments on the property as required by the agreement until July 1983. The Nietmanns cross-claimed against Reynolds for indemnification as to any amounts they were required to pay the Powells and for the commission they had paid Reynolds. Before trial, the Powells elected to pursue only the claim for rescission.

Following a trial, the trial court granted rescission to the Powells based on the misrepresentation by Reynolds that the property was suitable for a year-round residence and that a subsurface septic disposal system could be installed on the property. The trial court found that in order to restore the Powells to the status quo they were entitled to judgment against the Nietmanns for the following amounts:

Closing costs $14,480.00 (including down payment and costs)

Payments on principal 3,350.48

Interest paid 16,865.52

Escrow fees 73.00

Architect’s fees for house plans 1,400.00

Engineer site inspection for septic permit 78.43

Property taxes for 1981, 1982, 1983 and 1984 972.78

Interest on down payment 14,261.80

Interest on monthly payments 14,030.47

Costs and attorney fees 7,446.34

Total $72,958.82

The trial court also found that the representations made by Reynolds about the availability of a septic sewage disposal system on the property were not authorized by the Nietmanns and were not based upon statements or representations made by the Nietmanns to him. The trial court concluded that the Nietmanns were entitled to indemnification from Reynolds for the amount paid by the Nietmanns to the Pow-ells because of the rescission.

II.

THE POWELLS ARE ENTITLED TO RESCISSION.

Reynolds asserts that the Powells were not entitled to rescission because they elected not to pursue that remedy by continuing to use the property and to make payments. We disagree.

We first clarify that the Powells are not properly respondents in this appeal. The judgment in favor of the Powells against the Nietmanns is not on appeal here. However, that does not prevent Reynolds from raising as between himself and the Nietmanns the issue of whether the Powells were entitled to rescission. While a determination of this question could not affect the judgment of the Powells against the Nietmanns, it could affect any liability that Reynolds might have to the Nietmanns by way of indemnification.

There is no indication in the record that the defense of the action for rescission against the Nietmanns by the Powells was tendered to Reynolds. Only if Reynolds had been asked to defend the Nietmanns and had refused to do so would the judgment of the Powells against the Nietmanns be conclusive against him to establish the measure of his liability to indemnify the Nietmanns. International Harvester Co. v. TRW, Inc., 107 Idaho 1123, 1125, 695 P.2d 1262, 1264 (1985). Since the Nietmanns did not tender the defense to Reynolds, the judgment against the Nietmanns is not conclusive against Reynolds.

Even though the judgment for rescission is not conclusive against Reynolds, the “election of remedies" issue he raises as to the right of the Powells to rescind is fallacious. Our Court of Appeals disposed of the election of remedies doctrine in Keesee v. Fetzek, 106 Idaho 507, 681 P.2d 600 (1984), rev. den. There, the Court of Appeals concluded:

If a plaintiff is said to have “elected” a remedy through certain acts or statements prior to litigation, the proper inquiry should be whether the defendant has relied upon such acts or statements and, therefore, would be unfairly prejudiced by assertion of a different, inconsistent remedy. ■ If so, the plaintiff should be bound to the remedy earlier chosen, not because of the election doctrine but because of the estoppel principle. Absent estoppel, he should be free to choose a different remedy.

Id. at 510-11, 681 P.2d at 603-04.

We find no basis for estopping the Powells from pursuing rescission here. There is no showing of any unfair prejudice that the Nietmanns suffered because the Powells used the property occasionally and continued to make the payments until 1983.

III.

THE NIETMANNS ARE ENTITLED TO INDEMNIFICATION.

Reynolds asserts that the Nietmanns are not entitled to indemnification because the Nietmanns were themselves guilty of misrepresentation by proceeding with the sale of the property, even though they knew that they could not obtain approval from the health district of a sewage system for the property. We disagree.

The trial court found that the Nietmanns did not discuss sewage disposal with Reynolds prior to the sale of the property to the Powells. The trial court also found that Reynolds told the Powells before they signed the agreement to purchase the property that he had checked out whether a septic system could be used on the property and that a “normal system” could be used. In fact, these statements by Reynolds were not true. The Nietmanns had no contact with the Powells before the sale. Therefore, any misrepresentations were those of Reynolds. It was those misrepresentations that were the basis for the rescission. The Nietmanns were entitled to indemnification from their agent, Reynolds. May Trucking Co. v. International Harvester Co., 97 Idaho 319, 321, 543 P.2d 1159, 1161 (1975).

IV.

THE NIETMANNS ARE NOT ENTITLED TO INDEMNIFICATION FOR AMOUNTS WHICH BENEFITED THEM.

Even though the Nietmanns are entitled to indemnification, they are not entitled to indemnification for all the amounts they are required to pay to the Powells as a consequence of the rescission. Some of these amounts represent payments that were made by the Powells to the Nietmanns or for their benefit. The closing costs (including the down payment and costs), the payments on principal and interest and the property taxes are of this nature. Also, the interest awarded for the amount of the down payment and the monthly payments compensates the Pow-ells for the loss of the use of their money until the rescission was ordered. The Nietmanns, not Reynolds, had the use of this money until the rescission was ordered. It would not be equitable to require Reynolds to indemnify the Nietmanns for these amounts.

The Nietmanns are entitled to have restored to them the commission they paid to Reynolds ($4,950.00), plus interest on that amount from the date of its payment. They are also entitled to indemnification for the escrow fees, the architect’s fees, the fees for the site inspection and the costs and attorney fees awarded to the Powells against the Nietmanns. The Nietmanns had no benefit from these amounts and would not have been required to pay these amounts but for the misrepresentations of Reynolds.

V.

CONCLUSION.

We vacate the judgment and remand the case to the trial court for judgment consistent with this opinion.

Because of the mixed result here, we award no costs or attorney fees on appeal.

BAKES, C.J., and HUNTLEY,* J., concur. SHEPARD, J., sat, but did not participate in the opinion due to his untimely death.