Bailey v. Ewing
671 P.2d 1099 (1983)
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Rule of Law:
A deed may be reformed due to a mutual mistake when both parties share a misconception about a basic assumption, such as a boundary line, that is so fundamental that the resulting error falls outside the scope of any risk the parties consciously assumed. However, reformation will not be granted if it prejudices the rights of a subsequent bona fide purchaser who lacked notice of the mistake.
Facts:
- Gary Erhardt, as a personal representative, decided to sell a decedent's property, consisting of two adjoining lots (Lot 5 and Lot 6), as two separate parcels.
- Lot 5 contained a house, while Lot 6 was the adjacent parcel.
- At an auction, Erhardt told prospective purchasers, including Guy Ewing, that he thought the eastern boundary of Lot 5 was near some lilac bushes but repeatedly stated he was not certain of the exact location.
- Ewing purchased Lot 5 at the auction, and a week later, Erhardt sold the adjoining Lot 6 to Fred Bailey, who had also attended the auction.
- A subsequent survey revealed the true boundary line between the lots was less than one foot from the house on Lot 5, passing through its eaves, and that the house's water and sewer lines were located under the surface of Lot 6.
- Believing he owned the land up to the lilacs, Ewing occupied it and erected a fence, which prompted Bailey to commission the survey and assert his ownership over the disputed strip of land.
Procedural Posture:
- Fred Bailey filed a quiet title action against Guy Ewing in the trial court to establish ownership of a disputed strip of land.
- Ewing filed a counterclaim against Bailey and a third-party complaint against the seller, Gary Erhardt, seeking reformation of the deeds based on mutual mistake.
- The trial court found for Bailey and Erhardt, holding that the mistake was a unilateral mistake by Ewing and denying reformation.
- Ewing, as the appellant, appealed the trial court's judgment to the intermediate court of appeals.
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Issue:
Does a shared, mistaken belief by a seller and buyer about the location of a property boundary, where both parties intended to convey a house entirely on one parcel but the true boundary line bisects the house, constitute a mutual mistake justifying potential reformation of the deeds?
Opinions:
Majority - Swanstrom, J.
Yes. A shared, mistaken belief about a property boundary that leads to a result neither party intended, such as a boundary line bisecting a house, constitutes a mutual mistake. The trial court erred in concluding the mistake was unilateral. Both the seller, Erhardt, and the buyer, Ewing, mistakenly believed the boundary line of Lot 5 was located somewhere east of its true position and shared the basic assumption that the sale would convey the entire house. This shared misconception about a vital fact is the definition of a mutual mistake. While both parties were aware of their limited knowledge and thus assumed some risk (a state of 'conscious ignorance'), they did not assume the risk that the line would run through the house itself. Such a result was beyond the scope of the risk reasonably anticipated by either party. Therefore, the doctrine of conscious ignorance does not bar relief. The case is remanded to determine if reformation is a proper remedy, which hinges on whether the subsequent purchaser, Bailey, was a bona fide purchaser for value without notice of the circumstances that would have put him on inquiry.
Analysis:
This case provides a key clarification of the 'conscious ignorance' or 'assumption of risk' doctrine within the law of mutual mistake. It establishes that even when parties acknowledge uncertainty about a fact, they only assume the risk of foreseeable variations, not outcomes that are fundamentally different and defeat the object of the contract. The decision reinforces the principle that absurd results not contemplated by either party can still be remedied through reformation. It also highlights the critical role of the bona fide purchaser (BFP) doctrine as a limit on equitable remedies, placing the burden of proof on the subsequent purchaser to establish their BFP status when confronted with evidence of a prior mistake.
