Jones v. Ray

Bill R. JONES v. Walter and Belinda RAY

CA 95-562                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                             En Banc
                 Opinion delivered July 3, 1996


1.   Civil procedure -- issues tried by express or implied consent
     of parties are treated as if they had been pled -- issue of
     award of damages properly tried by parties' implied consent. -
     - Where rescission was the only claim for relief sought in
     appellees' complaint, but the record reflected that appellees
     and appellant himself presented testimony concerning the
     amount that it would cost to repair termite damage, the issue
     was tried by the implied consent of the parties; although
     pleadings are required so that each party will know the issues
     to be tried and be prepared to offer his proof, ARCP Rule
     15(b) provides that issues not raised in the pleadings but
     tried by express or implied consent of the parties shall be
     treated in all respects as if they had been pled. 

2.   Remedies -- doctrine of election of remedies does not apply to
     causes of action -- no merit found in appellant's challenge to
     chancellor's ruling. -- Where appellant failed to cite any
     authority for the proposition that the chancellor could not
     make an award of damages to compensate appellees for their
     loss upon finding that rescission of the contract was not
     justified under the facts presented at trial, no merit was
     found in his challenge to the chancellor's ruling; the
     doctrine of election of remedies applies to remedies, not to
     causes of action; it bars more than one recovery on
     inconsistent remedies; no double recovery occurred here;
     therefore, it could not be said that the doctrine of election
     of remedies was offended; a court of equity may fashion any
     reasonable remedy justified by the proof. 

3.   Damages -- amount of damages awarded by chancellor not clearly
     erroneous -- chancellor's ruling not disturbed. -- Where the
     chancellor found that the repair of the floor was necessary
     and accepted the estimate of appellees' witness, who stated
     that the total damage could be repaired for $2,446.99, the
     chancellor's finding was not clearly erroneous based upon the
     evidence presented; chancery cases are reviewed de novo on
     appeal, and the appellate court will not disturb the
     chancellor's findings unless they are clearly against the
     preponderance of the evidence, giving due deference to the
     chancellor's superior position to determine the credibility of
     the witnesses and the weight to be given their testimony.  

4.   Appeal & error -- chancellor's order not clear on who was to
     bear expense of termite contract -- issue remanded to
     chancellor for reconsideration. -- Where the chancellor's
     order concerning who was to bear the expense of keeping the
     home under a termite contract for an indefinite period was not
     entirely clear, and the parties themselves disputed its
     meaning, the appellate court remanded this point alone for the
     chancellor to reconsider or to clarify his order; although the
     appellate court has the power to decide chancery cases de novo
     on the record, the court may, in appropriate cases, remand
     such cases for further action. 


     Appeal from Randolph Chancery Court; Tom L. Hilburn,
Chancellor; affirmed in part; remanded in part.
     Murrey L. Grider, for appellant.
     Don R. Brown, for appellees.

     Judith Rogers, Judge.*ADVREP*CA9*                   EN BANC  




                                       CA 95-562
                                        
                                                   July 3, 1996        
                                          

BILL R. JONES                        AN APPEAL FROM THE CHANCERY
                 APPELLANT           COURT OF RANDOLPH COUNTY,        
                                                            
VS.
                                     HONORABLE TOM L. HILBURN,       
WALTER AND BELINDA RAY,              CHANCELLOR             
                 APPELLEES
                                     AFFIRMED IN PART; AND             
                                     REMANDED IN PART. 






                         Judith Rogers, Judge.
     
     This case involves a dispute between the buyers and seller of
a house.  This is an appeal from a decree resolving that dispute
wherein the chancellor granted appellee-buyers judgment in the
amount of $2,446.49 and ordered appellant-seller to bear the
expense of placing the home under a termite contract.  Appellant
raises two issues on appeal.  He contends:  (1) that the chancellor
erred in granting relief not sought by appellees; and (2) that the
chancellor erred in granting the amount and nature of damages
awarded.  We find no merit in the first issue raised, but we find
sufficient merit in a portion of the second issue to remand on that
point.
       Appellees, Walter and Belinda Ray, purchased a home from
appellant, Bill Jones, on May 27, 1993.  Thereafter, they filed
this suit in equity for the rescission of the purchase agreement. 
In their complaint, appellees alleged that the house had termite
damage, that the sewer was defective and that a weight-bearing wall
had settled due to deterioration in the underlying foundation. 
Appellees further alleged that appellant had concealed these
material facts in order to induce their purchase of the house. 
After a hearing, the chancellor found no fraudulent inducement and
concluded that the parties were operating under a mutual mistake of
fact regarding the existence of termites and the resulting damage. 
The chancellor found, however, that this mutual mistake of fact was
not substantial enough to warrant rescission of the contract.  The
court then awarded appellees $2,446.99 for the repair of the
termite damage.  The chancellor further ordered that the house be
inspected for termites after the completion of the repairs and that
"the residence should be placed under a contract at the expense of
the [appellant]."  This appeal followed.
     As his first issue, appellant contends that the chancellor
erred in awarding appellees damages when rescission was the only
claim for relief sought in their complaint.  Appellant contends
that appellees elected the remedy of rescission and that he had no
notice of a damage claim.  We do not find this argument persua-
sive.  The record reflects that appellees, and appellant himself,
presented testimony concerning the amount it would cost to repair
the termite damage.  We have held that, although pleadings are
required so that each party will know the issues to be tried and be
prepared to offer his proof, Rule 15(b) of the Arkansas Rules of
Civil Procedure provides that issues not raised in the pleadings,
but tried by express or implied consent of the parties, shall be
treated in all respects as if they had been pled.  In re Estate of
Tucker, 46 Ark. App. 32, 881 S.W.2d 226 (1994).  Under the
circumstances, we conclude that the issue was tried by the implied
consent of the parties.  Moreover, appellant has failed to cite any
authority for the proposition that the chancellor could not make an
award of damages to compensate appellees for their loss upon
finding that rescission of the contract was not justified under the
facts presented at trial.  The doctrine of election of remedies
applies to remedies, not causes of action.  Smith v. Walt Bennett
Ford, Inc., 314 Ark. 591, 864 S.W.2d 817 (1993).  Simply put, it
bars more than one recovery on inconsistent remedies.  Cater v.
Cater, 311 Ark. 627, 846 S.W.2d 173 (1993).  No double recovery has
occurred here; therefore, it cannot be said that the doctrine of
election of remedies has been offended.  A court of equity may
fashion any reasonable remedy justified by the proof.  Smith v.
Eastgate Properties, Inc., 312 Ark. 355, 849 S.W.2d 504 (1993).  We
find no merit in appellant's challenge to the chancellor's ruling. 
     Appellant also takes issue with the amount of damages awarded
by the chancellor, arguing that it exceeded the amount necessary to
repair the damage.  The chancellor, however, considered the
testimony of appellant's witness and disregarded it for the reason
that the witness's estimate did not include the cost of repairing
the floor.  The court found that the repair of the floor was
necessary and accepted the estimate of appellees' witness who
stated that the total damage could be repaired for $2,446.99. 
Chancery cases are reviewed de novo on appeal, and the appellate
court will not disturb the chancellor's findings unless they are
clearly against the preponderance of the evidence, giving due
deference to the chancellor's superior position to determine the
credibility of the witnesses and the weight to be given their
testimony.  McClard v. McClard, 50 Ark. App. 189, 901 S.W.2d 33
(1995).  We cannot say that the chancellor's finding is clearly
erroneous.
     Appellant further argues that the chancellor erred in ordering
him to bear the expense of keeping the home under a termite
contract for an indefinite period.  In response, appellees maintain
that appellant's interpretation of the order is too broad.  We
agree that the chancellor's order is not entirely clear on this
point.  Although we have the power to decide chancery cases de novo
on the record before us we may, in appropriate cases, remand such
cases for further action.  Since the chancellor's direction is
unclear and the parties themselves dispute its meaning, we think it
appropriate to remand for the chancellor to reconsider or clarify
his order on this point alone.
     Affirmed in part; remanded in part.
     Jennings, C.J., and Cooper and Robbins, JJ., agree.
     Griffen and Mayfield, JJ., dissent.  *ADVREP*CA9-A*               EN BANC





                                   CA 95-562

                                                   July 3, 1996


BILL R. JONES                      AN APPEAL FROM RANDOLPH        
              APPELLANT            COUNTY CHANCERY COURT
                                   NO. E94-61

V.                                 HON. TOM L. HILBURN,     
CHANCELLOR

WALTER N. RAY                       
              APPELLEE             DISSENTING OPINION



                   Wendell L. Griffen, Judge.


     I disagree with the result that the majority has reached in
this case and write to explain why I believe that the chancellorþs
decision should be reversed and the case remanded.
     Appellee and his wife contracted to purchase from appellant a
house located on an acre of land in Randolph County for $34,500. 
The sale contract closed on May 27, 1993, with title conveyed by
warranty deed.  On March 25, 1994, appellee filed a complaint for
rescission, alleging that at the time of the sale, appellants
failed to disclose three material facts about the property that
would have caused him not to purchase it: (1) the existence of
extensive termite damage; (2) a faulty sewer system that did not
pass inspection; and (3) a defective weight-bearing wall in the
center of the residence that settled because the foundation had
deteriorated.  The action was tried on December 13, 1994, and the
chancellor found that appellant was not at fault concerning
installation of a new sewer system.  However, he found that the
residence suffered from þsubstantial termite and water damageþ at
the time of the sale that was unknown to both parties and consti-
tuted a mutual mistake of fact.  Yet the chancellor concluded that
the þmutual mistake of fact was not . . . substantial enough to
entitle the [appellees] to rescission of the sale.þ  In lieu of
rescission, the chancellor entered a decree directing appellant to
accept a repair bid of $2,446.99 for repair of the termite and
water damage, to obtain a termite inspection by a licensed
contractor after the repairs are completed, and to place the
property under a termite contract at the appellantþs expense. 
Appellant challenges this decree and contends that because the
chancellor granted relief not sought by appellee and erred in the
amount and nature of the damages awarded, reversal is mandated.
     Before a mutual mistake will affect the binding force of a
contract, the mistake must be of an existing or past material fact
that is the basis of the contract.  Mitchell v. First Nat'l Bank in
Stuttgart, 293 Ark. 558, 739 S.W.2d 682 (1987).  When rescission is
based on mutual mistake rather than fraud, the recoveries of the
parties are limited to their restitutionary interests.  Carter v.
Matthews, 288 Ark. 37, 701 S.W.2d 374 (1986).  Although we review
chancery cases de novo on the record, the test on review is not
whether we are convinced that there is clear and convincing
evidence to support the trial judgeþs findings, but whether we can
say that the trial judgeþs findings were clearly erroneous. 
Lambert v. Quinn, 32 Ark. 184, 798 S.W.2d 448 (1990).
     I am convinced that the chancellor had no authority to award
relief in the nature of damages and specific performance.  The
complaint was for rescission and restitution of the purchase price,
not for specific performance and damages for breach of contract. 
The remedy of rescission and restitution is inconsistent with
either specific performance or damages.   The case was pled as one
for rescission and restitution, tried on that basis, and appellee
did not move to amend the pleadings to conform to the proof at
trial.  The inconsistency of the remedies compelled the holding
that appellee elected to pursue, and was entitled to be granted,
the remedy of rescission and restitution, not specific performance
and damages.  Therefore, the chancellorþs decree directing
appellant to effect repairs and pay for them was erroneous.
     The chancellor also erred by directing appellant to procure a
contract protecting the residence against future termite damage. 
At most, the parties contracted that appellant would furnish a
certificate that the residence was free of termites when the sale
occurred.  The chancellor decreed, however, that appellant would
obtain a contract for future termite protection covering an
indefinite period of time.  This relief was not only inconsistent
with the rescissionary relief sought by the complaint, it went
beyond anything that the parties  negotiated.  The goal of
rescission is to return the affected party to the position that it
would have enjoyed had no transaction occurred, not to give that
party the benefit of a bargain never negotiated.  Even if the house
had been termite free based upon a termite inspection by a licensed
inspector, appellant would not have been liable for the cost of
termite protection after the purchase, let alone for an indefinite
span of time thereafter.
     However well-intentioned the majority may be in reaching its
result, this decision suffers from the flaws of result-oriented
reasoning.  There are no valid grounds to justify a decision
granting compensatory and specific performance relief, even on de
novo review as we perform on chancery appeals.  Nobody sued for
damages.  Nobody sued for specific performance.  The majority
attempts to escape these uncontroverted and indisputable realities
by stating that appellee filed no cross-appeal challenging the
compensatory and specific performance relief that the chancellor
granted, and by noting that appellant contested the rescissionary
relief that appellees sought at trial.  Those observations are
correct as far as they go; their flaw is that they do not travel
the logical distance required for deciding this appeal.  Appellant
did contest rescission at trial.  Appellees have not filed a cross-
appeal.  These realities do not alter the fact that nobody sought
any relief that the chancellor awarded.  Furthermore, nobody ever
had a clue---or a rational reason to suspect---that the chancellor
contemplated granting that relief.  That error is the crux of this
appeal. The majority opinion does nothing to correct it, nor does
it provide meaningful guidelines to trial judges and litigants
about when and under what circumstances similar results may be
upheld in the future.  
     If notice pleading is to serve its rightful purpose of
informing parties and courts what a lawsuit is about, and if courts
are bound to hold parties to their pleadings in weighing the
evidence in trials, it is both illogical and unfair for courts to
disregard the pleadings and the proof and manufacture remedies and
facts.  Yet that is precisely the result affirmed by this decision. 
Without warning, the parties received a judicial decision that
granted appellees an indefinite termite contract at appellantþs
expense, enforced a purchase contract for a house they had sued to
rescind, and did so on the justification that although there was
inescapable proof that a mutual mistake of a material fact occurred
(that the house had been certified to be free of termite infesta-
tion when there was what the chancellor found to be þsubstantial
termite and water damageþ), the mistake was not þsubstantial
enough.þ  Neither the trial court nor the majority opinion explains
how a mutual mistake that is not þsubstantial enough" to justify
voiding a transaction and returning the parties to their original
position is somehow þsubstantial enough" to warrant imposing a
contractual relationship entirely different from anything that the
parties negotiated or from the relief they sought by the litiga-
tion.
     Rule 5(a) of the Arkansas Rules of Civil Procedure requires
that any pleading asserting new or additional claims for relief
against any party who has appeared in an action must be served on
that party pursuant to the rule concerning service and filing of
pleadings.  Rule 8(a) requires that  all pleadings setting forth a
claim for relief shall contain (1) a statement in ordinary and
concise language of facts showing that the pleader is entitled to
relief, and (2) a demand for the relief to which he considers
himself entitled.  Rule 8(f) provides that all pleadings shall be
liberally construed so as to do substantial justice.  The Report-
erþs Notes to Rule 8 state that the purpose of this rule is to
require that pleadings be drafted in such a manner as to give a
party fair notice of what the claim is and the grounds upon which
it is based.  Rule 15(b) provides that when issues not raised by
the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects as if they had been
raised in the pleadings, and that failure by any party to move to
amend the pleadings as may be necessary to cause them to conform to
the evidence and to raise the new issues does not affect the result
of the trial of those issues.  
     It is true that the parties introduced proof concerning the
cost of correcting the termite damage to the house.  That does not
warrant the conclusion that they agreed, explicitly or implicitly,
to try the case as one for breach of contract and damages.  The
more realistic conclusion is that the proof was intended to
demonstrate the differing views on the extent of termite infesta-
tion and damage to show whether it was significant.  It is well-
settled, after all, that courts will not grant rescission in cases
involving insignificant consequences flowing from a mutual mistake
of material fact.  Dan B. Dobbs, Law of Remedies  12.11(2), at 295
(2d ed. 1993).  Therefore, the fact that both parties presented
proof regarding the cost of repairing the damage caused by the
termite infestation does not justify concluding that they agreed to
try the case for damages due to breach of contract---relief that
neither of them sought---or a contractual relationship wholly
different from the one they negotiated.
     Due process---also termed as fundamental fairness---demands
that parties at least know in advance of the decision what remedies
a court may be contemplating regarding their dispute, even if they
necessarily cannot know whether or not the remedies will be
obtained or imposed.  In this case, neither party knew that the
chancellor was contemplating entering an award of damages coupled
with a decree of specific performance, and the appellant could not
have imagined that the chancellor would order him to pay for
termite protection for an indefinite period of time on a termite-
infested house that the appellee and his wife indicated they did
not want to keep.  Based on the result announced by the majority,
the parties now must wonder what kind of termite contract they will
be likely to get and be ordered to provide on the house that
appellees did not want to keep.  Other readers of the majority
opinion now must wonder when and whether they may be faced with a
dispute that will result in unwanted, unsought, and unpleaded
relief based upon facts never proved.  Rather than subject anybody
to either scenario, I would reverse the chancellorþs decision and
remand the case with instructions to enter a decree granting
rescission of the purchase contract and return of his out-of-pocket
costs.
     Mayfield, J., joins in this dissent.