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Division of Agriculture Loan Fund v. Carpenter (3/4/94), 869 P 2d 1181
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NOTICE: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
STATE OF ALASKA, DIVISION OF )
AGRICULTURE, AGRICULTURAL )
REVOLVING LOAN FUND, )
) Supreme Court No. S-5228
Appellant, )
) Superior Court No.
v. ) 4FA-90-596 CI
)
WAYNE M. CARPENTER, ) O P I N I O N
)
Appellee. ) [No. 4065 - March 4, 1994]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Mary E. Greene,
Judge.
Appearances: Richard L. Musick,
Assistant Attorney General, Fairbanks, and
Charles E. Cole, Attorney General, Juneau,
for Appellant. Joe P. Josephson, Anchorage,
for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews and Compton, Justices.
COMPTON, Justice.
This case arises out of the purchase of, and failure to
pay for, agricultural lands and agricultural loans. The State
appeals the superior court's denial of its motion for a directed
verdict on Carpenter's claim that his duty to pay on the loans
was discharged based upon the theories of mutual mistake,
commercial impracticability and misrepresentation. The State
also appeals the superior court's denial of its motion for a
directed verdict on Carpenter's counterclaim based on
misrepresentation as to the underlying land sales contract. We
reverse.
I. FACTUAL AND PROCEDURAL BACKGROUND
In April 1978 Wayne Carpenter purchased land from the
Division of Lands of the Department of Natural Resources (DNR).
In April 1981 he purchased more land from DNR. Both land sale
contracts contained the same disclaimer:
The Seller makes no warranty, express or
implied, nor assumes any liability
whatsoever, regarding the social, economic,
or environmental aspects of the Parcel, to
include, without limitation, the soil
conditions, water drainage, or natural or
artificial hazards.
The contracts also disclaimed any guaranty of profitability. In
addition, the contracts included farm conservation or development
plans, requiring the buyer to improve and develop the land as a
working farm. In 1980 and 1983 Carpenter borrowed money from the
Agricultural Revolving Loan Fund (ARLF), a state agency created
within DNR for the purpose of lending money to farmers to help
them develop their land.
Carpenter made repeated efforts over the years to
plant, but these efforts were unsuccessful. Spring flooding of
the land became a perennial problem. As soon as the ground
thawed in June, the water table rose and the land became too wet
to support the equipment required for planting. In 1987
Carpenter abandoned efforts to farm the land. The land was
reclassified as unsuitable for agriculture. Carpenter ceased
making payments toward his ARLF loans.
ARLF filed an action for damages, repossession and
foreclosure. Carpenter filed an answer claiming he was excused
from performing under the contracts, along with counterclaims
based upon allegations of negligence, misrepresentation, mutual
mistake of fact and breach of contract. The superior court
granted the State's directed verdict motion on the claims of
negligence and breach of contract, but denied the motion as to
misrepresentation, mutual mistake of fact and commercial
impracticability. The jury found that Carpenter was excused from
his duty to repay the loans because of mutual mistake, commercial
impracticability and misrepresentation. The jury also found that
Carpenter proved his counterclaim of misrepresentation. The
court, sitting without a jury for the purpose of considering
equitable restitution, made decisions concerning the property to
be returned to the State and the State's monetary obligation to
Carpenter. Final judgment was entered in June 1992. The State
appeals.
II. DISCUSSION
A. STANDARD OF REVIEW.
In reviewing a ruling on a motion for a directed
verdict, this court determines "whether the evidence, when viewed
in the light most favorable to the non-moving party, is such that
reasonable [people] could not differ in their judgment." Holiday
Inns of Am., Inc. v. Peck, 520 P.2d 87, 92 (Alaska 1974).
B. THERE WAS INSUFFICIENT EVIDENCE UPON WHICH A REASONABLE
JURY COULD HAVE FOUND MUTUAL MISTAKE OF FACT.
Carpenter contends that both he and the State held an
honest but mistaken belief that the land could be farmed. He
argues that he was not consciously uncertain of the suitability
of the land for agriculture. He further contends that the
"disclaimer" clauses were "boilerplate" clauses in form
contracts. In addition, Carpenter argues that the jury could
have reasonably inferred that because the loans were given to
develop the land, there was a mutual mistake on the part of both
parties as to the suitability of the land for agriculture.
The State contends that the disclaimer clauses are
unrebutted evidence of Carpenter's awareness of the possibility
that the land might not be suitable for agriculture. Further,
the disclaimers placed the risk of potential problems with the
land on Carpenter. The State also argues that there was no
showing that the character of the land was part of the "basic"
assumption of the loan contracts. The State emphasizes that the
record is devoid of any evidence that the loans were to be paid
from Carpenter's agricultural earnings, "or that they were in any
way linked to the success of Carpenter's farming efforts."
Under Alaska law,
[j]udicial relief from the provisions of
a contract on the basis of mutual mistake is
proper where there was a mistake of both
parties at the time of contracting as to a
basic assumption on which the contract was
made; the mistake had a material effect on
the agreed exchange of performances, and the
party seeking relief did not bear the risk of
the mistake.
Mat-Su/Blackard/Stephan & Sons v. State, 647 P.2d 1101, 1104
(Alaska 1982); Fowler v. City of Anchorage, 585 P.2d 817 (Alaska
1978). We agree with the State that the law distinguishes
between mistakes concerning the nature of the subject matter of a
contract and conscious uncertainty concerning that nature. John
D. Calamari & Joseph M. Perillo, Contracts 9-26, at 382 (3d.
ed. 1987). "Where there is conscious uncertainty there is an
assumption of the risk that the resolution of the uncertainty may
be unfavorable." Id.
The State correctly asserts that the detailed
disclaimers of warranty as to the condition of the land
demonstrate that Carpenter was consciously uncertain as to the
character of the land. Furthermore, the State correctly contends
that even if Carpenter was not consciously uncertain as to the
character of the land, he failed to demonstrate that he did not
contractually bear the risk of the mistake. See Mat-Su, 647 P.2d
at 1101, 1104-05.
The disclaimers in the land sale contracts place the
risk of the condition of the land on Carpenter. The contracts
provide: "The Seller does not warrant by such classification that
the land is suited for [agricultural] use, nor does the Seller
make any warranty, express or implied, that the use by the
Purchaser under such classification shall be profitable." In
addition, a contractual provision provided that Carpenter had
examined the description of the parcel, "had inspected the
parcel, or had voluntarily declined to do so, and was satisfied
with [its] description and condition." These provisions
demonstrate that the risk of the condition of the land was
allocated to Carpenter.
Although both parties may have intended that the land
be developed for agricultural purposes, the disclaimers in the
land sale contracts stand as unrebutted evidence that both
parties were consciously uncertain of the suitability of the land
for such a purpose. In addition, Carpenter contractually bore
the risk of the condition of the land. The discharge of
Carpenter's duty to pay the ARLF loans, based on mutual mistake,
cannot stand. Therefore, we hold as a matter of law that the
superior court should have granted the State's motion for a
directed verdict as to the mutual mistake of fact claim.
C. THERE WAS INSUFFICIENT EVIDENCE UPON WHICH A REASONABLE
JURY COULD HAVE FOUND COMMERCIAL IMPRACTICABILITY.
Carpenter argues that he never assumed the risk that
his land would be unsuitable for agriculture. Carpenter argues
that a basic assumption, both in buying the land and in borrowing
money from the ARLF, was that the land could be developed as
agricultural land. Therefore, when it became clear that the land
was not suitable for agriculture, the purpose of the contracts
was frustrated. Carpenter also claims that the impracticability
of payment falls within the scope of commercial impracticability.
Because farming his land was no longer a viable option, he
contends that it was impracticable to pay off the ARLF loans.
The State argues that the only performance required of
Carpenter was to repay the loans. The State claims that
commercial impracticability looks to the nature of the
performance required, not the financial resources of the debtor.
Here, when the only duty to be performed was repayment of a loan,
commercial impracticability is inapposite. Also, the State again
argues that the disclaimers evidence that there was no mutual
mistake that the land would be suitable for agriculture or that
it would be profitable.
In order for Carpenter to be excused from performing
under the loan contracts on the theory of commercial
impracticability he must show that his "performance under [the
contracts was] impracticable without his fault because of a fact
of which he [had] no reason to know and the non-existence of
which [was] a basic assumption on which the contract[s] [were]
made." Restatement (Second) of Contracts 266 (1) (1981). We
find that Carpenter fails to meet these requirements.
As discussed supra, the facts do not support
Carpenter's contentions. The disclaimers in the land sale
contracts disclaim any warranty as to the soil condition or
profitability of the land purchased by Carpenter. The
disclaimers make it clear that any problems in these areas were
not unanticipated. Carpenter assumed the risk of the condition
of the land that he purchased. Therefore, the feasibility of
farming the land as well as the profitability resulting from the
farming cannot be fairly categorized as a "basic assumptions" on
which the contracts were made. Furthermore, the continuation of
a party's financial solvency ordinarily is not a basic assumption
on which contracts are made. See Restatement (Second) of
Contracts 261 cmt. a (1981). In addition, the condition of the
land does not make repayment of the loans impracticable, only
more difficult because farming the land has not been profitable.
There was nothing in the loan contracts conditioning repayment on
the profitability of the farming venture. Therefore, Carpenter's
duty to pay on the ARLF loans was not discharged on the basis of
commercial impracticability. We hold as a matter of law that the
superior court should have granted the State's motion for a
directed verdict as to the commercial impracticability claim.1
D. THERE WAS NO EVIDENCE UPON WHICH A REASONABLE
JURY COULD HAVE FOUND MISREPRESENTATION.
Under Alaska law,
In order to avoid a contract on the
ground of misrepresentation, a party must
show four things: 1) that there was a
misrepre-sentation, 2) which was fraudulent
or material, 3) which induced the party to
enter the contract, and 4) upon which the
party was justified in relying.
Bering Straits Native Corp. v. Birklid, 739 P.2d 767, 768 (Alaska
1987).
Carpenter attempted to avoid his duty to repay the ARLF
loans and also attempted to rescind the land sale contracts based
upon the State's alleged misrepresentation of the nature of the
land. Carpenter contends that despite the disclaimers in the
land sale contracts, the jury could have reasonably found that
the State Division of Agriculture, which oversees the "farm
program and which, through its agent, [a loan examiner], advised
[him] that there was money available to borrow through the ARLF,
was holding out by implication that the land to be improved and
developed was farmable land." He contends that the purpose of
the State's loans to him was the development of his farm,
consistent with the development plans incorporated in the land
sale contracts. Carpenter admits that the State's
alleged representations that continuous working of the land would
dry it out over a period of years were made only after he had
signed the land sale contracts and borrowed through the notes
sued upon.2 Thus, these representations could not have induced
him to enter the contracts. Further, his contention that he was
justified in believing that the State would not sell land and
make agricultural loans if the land was not suitable for
agricultural development is without merit, considering the
specific disclaimers in the land sale contracts.
Viewing the evidence and the reasonable inference
therefrom in the light most favorable to Carpenter, we conclude
that fair minded jurors could not differ as to whether the State
misrepresented to Carpenter the suitability of the land for
agriculture, thus inducing him to enter into the land sale
contracts or to enter into the loan agreements. The superior
court erred in not directing a verdict in the State's favor on
this misrepresentation claim, since the evidence is insufficient
to support it.
III. CONCLUSION
We conclude that a directed verdict in favor of the
State should have been granted on all claims. The decision of
the trial court is REVERSED, and the case REMANDED for entry of
judgment consistent with this opinion.
_______________________________
1 Carpenter also appears to assert a defense based on
commercial frustration. The Restatement (Second) of Contracts
266 (2) (1981), provides:
Where, at the time a contract is made, a
party's principal purpose is substantially
frustrated without his fault by a fact of
which he has no reason to know and the non-
existence of which is a basic assumption on
which the contract is made, no duty of that
party to render performance arises, unless
the language or circumstances indicate the
contrary.
For the same reasons discussed in our analysis regarding
commercial impracticability, a defense of frustration cannot
prevail. The disclaimers in the loan contracts are evidence that
Carpenter was aware that his land potentially could be unsuitable
for agriculture. See, e.g., Smelting, Refining & Mining Co. v.
Wigger, 684 P.2d 850, 857 (Alaska 1984) ("[C]ommercial
frustration is no defense if the event was foreseeable.");
Restatement (Second) of Contracts 265 cmt. a (1981) ("The
frustration must be so severe that it is not fairly to be
regarded as within the risks that [were] assumed under the
contract.").
2 Carpenter later in his brief contends that assurances
of the agricultural potential of the land began immediately after
the land sales contracts were signed. However, Carpenter does
not give specific dates or names of the persons who allegedly
gave these assurances.
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