Daily Development for Thursday, January 10, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

VENDOR/PURCHASER; VENDOR'S REMEDIES; REFORMATION: Even where parties agree that description of property does not reflect their intentions, reformation will not be granted to vendor where the error resulted from vendor's gross negligence.

Foster v. Gibbons, 177 Ore. App. 45; 33 P.3d 329 (Ore. App. 2001)

Gibbons owned a 6 acre parcel, which she resolved to subdivide. She located a mobile home on one of the parcels, where she resolved to live, and her son was to live in the house built on the other parcel. She intended that the two parcels be approximately equal in size. Apparently, however, through an error by herself or her son, who cooperated on filing the legal descriptions with subdivision authorities, the two parcels as actually subdivided were not equal in size. The e mobile home parcel was more than one half acre larger than the other.

After she moved into the mobile home, Gibbons noticed that the tax bills that she received on the two parcels were not equal, and deduced that the property descriptions did not describe equal sized parcels. The parcel on which she had located the mobile home was larger than she intended. She went to the public subdivision authority, which informed her that she could do nothing about this discrepancy at this point (one wonders whether this was accurate - but that was Gibbon's testimony as to what she was told). Gibbons did nothing formally to change the boundary then, but planted trees along the boundary that she originally intended, breaking the parcel into two equal parts.

Some six years after the original subdivision, Gibbons resolved to sell the parcel with the mobile home. She showed the property to Foster, and told Foster that the trees marked the boundary. Foster entered into an installment land contract with Gibbons to buy the land. The contract described the property as "approximately 2.55 acres." This approximation of the size of the property was completely wrong (in fact it was the true size of the other parcel.) The property as bounded in the way that both Foster and Gibbons actually intended was 2.31 acres, while in fact the true legal description attached to the contract showed 2.98 acres.

For six years more, everything went swimmingly, although Foster was unwittingly paying taxes on a parcel 2.98 acres in size. Then Foster resolved to replace the mobile home she bought from Gibbons, and in evaluating the site for that purpose, she brought in surveyors who identified the boundary discrepancy. Foster brought it to Gibbons' attention.

Shortly thereafter, Foster, in refinancing the parcel in connection with the financing of the mobile home, attempted to pay off the installment land contract. Gibbons' refused to accept the payoff and deliver the deed in accordance with the agreement, demanding that the deed be reformed to reflect the true boundaries intended by the parties. Foster refused, and there ensued a period of wrangling and various types of minor retaliatory aggressions, including the blocking of an easement.

Finally, the case was brought, and Foster sued for breach of the installment land contract and blockage of the easement. Gibbons counterclaimed for trespass and for reformation of the contract (and, through it, the ultimate deed). The lower court granted the reformation, and gave damages for the blockage of the easement, and allocated attorney's fees reflecting a victory for Gibbons on the allegation of breach of the land sale agreement.

The Oregon Court of Appeals concluded that the lower court had erred in awarding reformation, despite the fact that it was apparently uncontroverted that Foster believed that the property she was buying was the property to which Gibbons wanted the deed reformed. The court cited authority indicating that reformation will not be granted where the party seeking such relief was guilty of gross negligence. It concluded that this was the case here. Gibbons had gone through considerable travails to ascertain precisely the problem with the description of the mobile home parcel, and was thoroughly familiar with the issues. Further, the original problem had resulted from her negligence. Nevertheless, when she had the contract drawn up for transfer to Foster she supplied her attorney with the original (erroneous) description of the subdivided parcel. This gross negligence precluded her from later correcting the problem, despite the apparent windfall to Foster.

Comment: One supposes that the idea is that parties shouldn't be able to foment disputes and march into court when the whole problem was caused by their own negligence, even when a windfall results when the problem is not corrected.

OK - the editor understands that principle. But he notes that it is not followed when (in one of the editor's pet peeve issues), a refinancing lender fails to properly subordinate a recorded lien when it pays off a lien senior to that lien. Even where the lender was negligent in failing to search the title, and even when the lender knew of the existing lien, many DIRT participants have argued that the court is correct in denying the windfall to the unsubordinated party by granting the refinancing party equitable subrogation to the lien paid off.

The editor has argued that for the courts to "bail out" careless refinancing lenders (and their title insurers) in these cases reflects a judicial bias in favor of careless bankers that courts don't show in other contexts. As the tabloids say: Now there is proof!!!

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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