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Keywords

contractsummary judgmentgood faith
contractappealgood faith

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Farmers Union Oil Co. of Garrison v. Smetana, 764 N.W.2d 665, 2009 ND 74

Facts

In the early 1990s, Cenex and Lewis Bauer owned adjacent properties in Garrison, North Dakota. Bauer sold a portion of his property to Cenex, and a fence was erected to mark the boundary. The Smetanas later purchased the property from Bauer's successors, believing they owned the northernmost 80 feet of Lots 13 and 14. However, a survey revealed that their house extended beyond this boundary, leading to a dispute over a 42-foot strip of land between the fence and the actual boundary line.

[¶ 3] In March 1992, Cenex contacted Bauer about purchasing a portion of his property. Using a tree on Bauer's lot as a reference point, Bauer and Cenex representatives “stepped off” the parcel to be sold and, using a tape measure, determined that the intended parcel was 116 to 117 feet long. On March 30, 1992, Bauer executed a deed to Cenex conveying: The Southern most 116 feet of the Northern most 196 feet of Lots Thirteen (13) and Fourteen (14) in Block One (1) of McLean County Addition to the City of Garrison, State of North Dakota, all in McLean County.

Issue

Did the district court err in determining that the Smetanas were not good faith purchasers for value, thereby precluding summary judgment?

[¶ 13] The dispositive issue on appeal is whether the district court could have concluded, as a matter of law, that the Smetanas were not good faith purchasers for value.

Rule

Reformation of a deed is governed by N.D.C.C. § 32–04–17, which allows for revision of a written contract that does not express the true intention of the parties due to fraud or mutual mistake, provided it does not prejudice the rights of third parties in good faith and for value.

[¶ 14] Reformation of a deed is governed by N.D.C.C. § 32–04–17 : When, through fraud or mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved so as to express that intention so far as it can be done without prejudice to rights acquired by third persons in good faith and for value.

Analysis

The court found that the district court incorrectly determined that the Smetanas had constructive notice of Cenex's interest in the property due to the existence of the fence. The critical question was whether the Smetanas had notice of the discrepancy between the fence's location and the boundary established in the recorded deeds. The court concluded that the Smetanas acted in good faith when purchasing the property, as they had no means of discovering the defect in the deed.

[¶ 22] The same issue is presented in this case. Although the presence of the fence may have been notice that the parties believed the fence was the boundary between their properties, the critical, separate question is whether the presence of the fence was sufficient to put the Smetanas on notice of the discrepancy between the location of the fence and the boundary established in the recorded deeds. Reformation is available against the Smetanas only if they had constructive notice of the discrepancy in the 1992 deed. The district court erred when it concluded that, as a matter of law, the Smetanas had constructive notice of facts which precluded them from being good faith purchasers for value.

Conclusion

The Supreme Court reversed the district court's judgment and remanded the case for further proceedings, emphasizing that the Smetanas were entitled to the protections afforded to good faith purchasers.

[¶ 25] We conclude the district court erred in determining that, as a matter of law, the Smetanas were not good faith purchasers for value.

Who won?

The Smetanas prevailed in the case because the Supreme Court found that there was a genuine issue of material fact regarding their status as good faith purchasers for value.

[¶ 25] We conclude the district court erred in determining that, as a matter of law, the Smetanas were not good faith purchasers for value.

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