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Hill-Shafer Partnership v. Chilson Family Trust
Citations: 162 Ariz. 485; 784 P.2d 691; 37 Ariz. Adv. Rep. 39; 1989 Ariz. App. LEXIS 190Docket: No. 1 CA-CIV 9452
Court: Court of Appeals of Arizona; June 29, 1989; Arizona; State Appellate Court
A landowner, represented by trustees of the Chilson Family Trust, engaged in a contract to sell two of three contiguous parcels of land. The seller insisted that the property be identified solely by legal description. The dispute arose over whether the seller could avoid the sale due to lack of mutual assent, as the provided legal description did not reflect the seller's intent. The contract specified the middle and southern parcels, while the seller claimed the intent was to sell the middle and northern parcels. The court found that the trial court incorrectly granted summary judgment to the seller, determining that the issue was one of unilateral mistake rather than lack of mutual assent. The resolution of whether the seller could escape the consequences of this mistake depended on disputed factual and equitable issues that could not be resolved summarily. The facts reveal that the seller listed the northern triangular parcel, referred to as "the Triangle," and the northern parcel adjacent to Butler Avenue for lease. The buyer, interested in purchasing these parcels, submitted a letter of intent detailing the land and proposing terms for purchase. The seller rejected the buyer's proposal but later made a counter-offer that required the property to be identified only by legal description without including a map or price adjustments based on surveyed acreage. Ultimately, the contract identified Butler North and South instead of the intended parcels, with the seller asserting this was a mistake reflecting their true intent to sell the Triangle and Butler North while retaining Butler South. The reasons for the change in legal description and the parties' knowledge of this discrepancy remain contested. A mistake originated from earlier deeds prepared by a title company, where the Chilsons transferred three properties to the Chilson Family Trust. Chilson admitted that the legal description in question clearly referred to Butler North and South, relating to an easement for Butler Avenue, but he mistakenly believed it described the Triangle and Butler North. The Buyer disputes Chilson's account, proposing an alternative theory regarding the Seller's actions. However, even if Chilson's account is accepted, the evidence favors the Buyer, preventing summary judgment for the Seller. During the contract signing, the Buyer, represented by Craig Shafer, initially sought to purchase the Triangle and Butler North but felt the deal's dynamics had shifted. The Buyer was concerned about the lack of property descriptions and maps provided by the Seller, only receiving the legal description, which led to uncertainty about the purchase. Despite this, the Buyer accepted the risk as the contract allowed for withdrawal after receiving the Seller's survey. The Seller disputed the Buyer's representation and claimed that the Buyer recognized the legal description referred to Butler North and South. Before closing, the Seller refused to complete the sale, asserting the contract misidentified the land and proposed an amended agreement for the Triangle and Butler North, which the Buyer rejected. This refusal led to the cancellation of escrow. The Buyer then filed a suit for specific performance regarding Butler North and South, while the Seller countered that the original contract was void due to mutual mistake or the Buyer's wrongful conduct, also filing for quiet title and damages based on allegations of fraudulent concealment and racketeering. The trial court ruled on cross-motions for summary judgment: it granted the Buyer judgment against the Seller's fraud and racketeering claims, but ruled against the Buyer on the specific performance claim, granted the Seller quiet title, and awarded part of the Seller's attorney fees. The Buyer appealed the dismissal of its specific performance claim, while the Seller cross-appealed regarding the attorney's fee award. The ruling concluded that the summary judgment against the Buyer was improper, vacating that judgment and the Seller's fee award, thus rendering the Seller's cross-appeal unnecessary. Buyer claims a valid and enforceable contract exists for the conveyance of land as described in the legal description. Seller, contesting this during summary judgment, argues that it interpreted the legal description to refer to different land, specifically the Triangle and Butler North. Seller contends that the parties' materially different interpretations of the contract indicate a lack of mutual assent, rendering the contract void. According to the Restatement (Second) of Contracts, a contract is formed through mutual assent and consideration. Section 20 addresses misunderstandings: if parties attach materially different meanings to their manifestations without knowledge of the other's meaning, no mutual assent exists. Conversely, if one party's meaning is unknown to the other, the contract may be enforceable based on the understanding of the informed party. Seller relies on subsection 1 of Section 20 to argue that the misunderstanding nullified the contract, a position the court disputes. The Reporter’s Note emphasizes that a contract is void only when misunderstandings involve irreconcilable meanings of a material term. Williston supports this, stating that if a contract term is reasonably open to multiple interpretations, no contract is established. The principle is illustrated by the case of Raffles v. Wichelhaus, where conflicting meanings of "Peerless" prevented contract formation, and Buckmaster v. Dent, which involved a misunderstanding regarding property terms. The buyer agreed to purchase property with the condition of an easement for access over Entrance Street and other recorded exceptions that do not affect the property's value. The seller intended the easement to ensure access for retained property to the west but later recorded an easement for a third party's property to the south, leading to a misunderstanding post-contract signing. The buyer believed only one easement was included, while the seller claimed both easements were encompassed by the contract language. The dispute was critical, as two easements could prevent the buyer from obtaining a permit to expand the park. The court upheld rescission due to the lack of a "meeting of the minds," indicating both parties had different interpretations of the contract's essential terms. This situation parallels previous cases where unilateral mistakes arose from differing interpretations of contract provisions. However, unlike those cases, the legal description provided by the seller was clear and specific, accurately detailing the properties involved. The seller's misunderstanding stemmed not from vagueness but from their own failure to verify the legal description. The seller's argument that the intent to transfer based on the legal description was too indefinite was rejected by the court. The Restatement (Second) of Contracts requires that contract terms be sufficiently precise to allow parties to fulfill their obligations with reasonable certainty or provide a basis for legal remedies. The legal description of the land in question was not indefinite; any misalignment with Seller's intent resulted from an incorrect description choice rather than semantic vagueness. Seller's argument for voidability under Restatement 20(1) was rejected. For voidability under 20(2), Seller likens its situation to a slip of the tongue example, suggesting that a mistake in the legal description should allow for avoidance. However, this analogy fails as Seller's conduct differs significantly from that of the party in the example—Seller provided an erroneous legal description after detailed negotiations and insisted on its exclusive use, while also drafting the contract. Unlike the scenario in illustration 5, where the mistake was unambiguous, here, Seller must demonstrate that it had no reason to know of any different meaning held by Buyer regarding the legal description. Ultimately, there exists a disputed material fact regarding Buyer's intent, which prevents summary judgment but does not automatically favor Seller's position under the Restatement. "Reason to know" is defined in the Restatement as a standard whereby an individual possesses sufficient information that would lead a person of ordinary intelligence to infer the existence of a fact, whether present or future. Those with superior intelligence are held to a higher standard, drawing inferences based on their level of understanding. An inference may also be deemed reasonable if there is a significant likelihood of a fact's existence, prompting the individual to act under the assumption of that possibility. This concept differs from "knowledge," which requires conscious belief in a fact, and "should know," which implies a duty to ascertain facts. In this case, it is determined that the Seller had reason to know that the Buyer could interpret the Seller's offer as an option contingent on a survey and feasibility study. The applicability of Restatement (Second) of Contracts § 20 is ruled out, although the Seller may still pursue recourse regarding the Buyer's possible inequitable advantage stemming from a mistake. Arizona law allows for avoidance or reformation of a contract even when a mistaken party could have prevented the mistake through reasonable care. The rules concerning unilateral mistake are outlined in Restatement (Second) of Contracts §§ 153 and 154. A contract may be voidable if one party's mistake regarding a fundamental assumption adversely affects their agreed performance, provided they do not bear the risk of that mistake. This is contingent on whether enforcement would be unconscionable or if the other party had reason to know of the mistake. Additionally, a party bears the risk of a mistake if it has been allocated by agreement, if they have limited knowledge yet accept it as sufficient, or if the court finds it reasonable to allocate such risk. The determination of whether the Seller bears the risk of its mistake involves multiple considerations. Seller's provision of an incorrect legal description raised the question of whether they assumed the risk of that mistake, particularly if it unintentionally included more valuable land that Seller intended to retain. The trial court may resolve this issue as a matter of law, similar to Howell v. Waters, where a buyer could not be deemed to bear the risk of misrepresented land dimensions without further evidence. However, since this question was not presented in the initial summary judgment motions, it will not be addressed at this time. Other unresolved issues, such as the unconscionability of enforcing the contract and the Buyer’s awareness of Seller’s mistake, require a factual determination and are not suitable for summary judgment. The appellate court has overturned the trial court's summary judgment and attorney's fees award in favor of Seller, remanding the case for further proceedings and deferring the question of attorney's fees to the final outcome.