Brown v. Greenheart

Brown v. Greenheart, 335 P.3d 1 (Idaho 2014) (holding that: (i) the statute of limitations for a quite title action does not begin to run until a party claims a right in property that is adverse to another; (ii) the statute of limitations for mutual mistake does not begin to run until the facts constituting the mistake are discovered, not when the mistake is discoverable; (iii) the plaintiffs adequately pled the issue of mutual mistake; and (iv) the conveyance was ambiguous and, therefore, the trial court did not err in considering extrinsic evidence to resolve the ambiguity).

Jay Brown and Christine Hopson-Brown owned a 320-acre parcel of land in Elmore County (“Brown Property”). In 2000, the Snake River Basin Adjudication Court decreed water rights associated with parcel to the Browns. The rights authorized the Brown’s to irrigate a total of 287 acres. In 2003, the Browns agreed to idle 160 acres of their property from irrigation, and lease the associated water rights to the Idaho Water Resource Board. Three years later, the Browns listed 60 unirrigated acres of their property for sale, communicating to their real estate agent that they did not wish to transfer any water rights with the listed 60 acres.

Augusta Greenheart purchased the 60 acres of land from the Browns. The real estate agent verbally informed Greenheart that the land was “dry,” and that there were no water rights associated with the property. The purchase and sale agreement included two provisions about the associated water rights. The first provision stated: “Seller represents that the property does have the following utilities, improvements, & other rights available.”  The provision was marked “not applicable.” The second provision, paragraph 16, stated: “WATER RIGHTS: Description of water rights, water systems, wells springs, water, ditches, ditch rights, etc. if any, that are appurtenant thereto that are on or used in connection with the premises and shall be included in the sale unless otherwise provided herein.” This provision was left blank. Additionally, in the Seller’s Disclosure Form accompanying the purchase and sale agreement, the parties marked the disclosure “Irrigation water provided by” as not applicable.

In 2007, First American Title prepared a warranty deed conveying the 60-acre piece of land to Greenheart, granting the premises “with their appurtenances.” Soon after, Greenheart noticed that, contrary to the conversations she had with the real estate agent and the Browns, her new property was classified as irrigated agriculture for tax purposes. Greenheart submitted a challenge with the Elmore County Board of Equalization to have the property classified as dry-grazing. The Elmore County Board of Equalization adjusted the classification, which decreased her taxes by $600 annually.

In 2012, the City of Mountain Home entered into discussions with the Browns to purchase their water rights for $2,000 per acre. During the negotiations, the Browns’ attorney notified the city that the Browns might have conveyed some of their water rights to Greenheart during the 2006 sale because of the “appurtenances” language contained in the 2007 warranty deed. After the Browns notified Greenheart of the possible mistake, Greenheart filed a notice of change of water right ownership with the Idaho Department of Water Resources (“IDWR”). IDWR approved Greenheart’s request, granting her ownership of a portion of the Browns’ water rights.

The Browns filed a quiet title action, “and sought declaratory judgment that they owned the water rights because the claim that the water rights passed under the appurtenances clause of the warranty deed was rebuffed by facts demonstrating that the parties did not intend to convey water rights.” The district court found that inclusion of the appurtenance language in the warranty deed was based on a mutual mistake between the parties, that the Browns were entitled to equitable relief on the grounds of quasi-estoppel and waiver, and entered a judgment reforming the warranty deed to reserve the water rights to the Browns.

On appeal, the Supreme Court of Idaho (“Court”) first addressed Greenheart’s contention that the Browns’ quiet title action and mutual mistake claim were both time-barred. The Court agreed with the district court, and held that the statute of limitations provided in Idaho Code section 5-224 did not prohibit the Browns’ quiet title action. The court noted that a cause of action for quiet title does not begin until a party “claims an interest in property ‘adverse to’ another.” The Court determined that the statute of limitations period did not begin to run until Greenheart asserted a claim to the water rights by filing the notice to change ownership with the IDWR.

The Court also rejected Greenheart’s assertion that the three-year statute of limitations provided in Idaho Code section 5-218(4) prohibited the Browns’ mutual mistake claim. Greenheart argued that the Court should adopt “a bright line rule that a party is expected to realize the alleged fraud or mistake at the time of execution of a deed.” In refusing to adopt such a rule, the Court noted that the statute expressly states a cause of action does not accrue “until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” The Court held that this did not occur until the Browns’ attorney discovered the mistake in 2012. Prior to that, both parties had operated under the assumption that the sale did not transfer water rights. Greenheart failed to produce evidence to the contrary.

Next, the court addressed the Brown’s mutual mistake claim. The district court ruled that the Browns’ were entitled to reformation of the deed based on mutual mistake. The district court found that “both parties shared a vital misconception about the water rights . . . and that the misconception was so substantial and fundamental as to defeat the object of the parties, which was the sale of dry-grazing land.” Greenheart did not challenge the factual basis of the district court’s ruling, but argued that the district court erred because the Browns did not plead mutual mistake, or in the alternative, that they did not plead mutual mistake with sufficient particularity. The Court disagreed and found that the Browns sufficiently plead the mutual mistake claim and that Greenheart had adequate notice that the issue would be litigated.

Greenheart also asserted a negligence claim against the Browns, arguing that they were negligent in protecting their interests in the water rights by not seeking legal advice during the sale. The district court concluded that the Browns acted reasonably because they sought the assistance of a licensed real estate agent. Because the district court’s discussion of negligence was only in the context of the statute of limitations argument, Greenheart’s independent negligence claim was being raised for the first time on appeal and the Court declined to address it.

Last, Greenheart appealed the district court’s decision that the purchase and sale agreement was ambiguous. The Court noted that, “[a] contract term is ambiguous when there are two different, reasonable interpretations of the language.” The Court found that the district court did not err in finding paragraph 16—providing for a “[d]escription of water rights . . . if any, that are appurtenant thereto that are now on or used in connection with the premises and shall be included in the sale unless otherwise provided herein”—was ambiguous because the term “herein” is inherently ambiguous. The Court also held that the agreement was ambiguous as to whether water rights were transferred, because the Browns checked the box indicating that a water rights transfer fee was not applicable. The Court stated that, “[i]f water rights were intended to be transferred, then the payment of the transfer fee would very much be applicable.” As a result, the Court held that the district court did not err in considering extrinsic evidence to resolve the ambiguity.

Accordingly, the court affirmed the district court’s findings in all respects, and held that the Brown’s were entitled to reformation of the original deed to specifically reserve all water rights to the Brown’s.

 

The title image features the Snake River in Mountain Home, Idaho. This image was created by an employee of the government and as such is part of the public domain.