Coleman Holdings Ltd. Partnership v. Eklund ( 2015 )

 partial release imposed setback restrictions when they originally acquired
the parcel, but had forgotten about the restrictions and erroneously
believed that the restrictions had since been removed. Accordingly,
appellants did not mention the setback restrictions to respondents.
After purchasing the property and discovering the setback
restrictions, respondents sued appellants for, among other things,
rescission of the real property sale due to mutual mistake. After the
parties filed competing summary judgment motions, the district court
found that the parties had made a mutual mistake in believing that the
property was not subject to any setback restrictions, granted respondents'
motion, and ordered the transaction rescinded. Appellants appealed.
Appellants argue that rescission for mutual mistake is
precluded because respondents had inquiry notice of the setback
restrictions based on the preliminary title report or constructive notice
because the partial release was recorded. Appellants do not dispute that
respondents did not have actual knowledge of the contents of the partial
release. Respondents argue that whatever implied notice they had was
irrelevant and that the district court properly found that the parties made
a mutual mistake. We review a district court's summary judgment de
novo. Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029
(2005).
A "[m]utual mistake occurs when both parties . . . share a
misconception about a vital fact upon which they based their bargain."
Gramanz v. Gramanz, 113 Nev. 1, 8, 930 P.2d 753, 758 (1997) (quotation
marks omitted). If a mutual mistake was made, "the contract is voidable
by the adversely affected party unless he bears the risk of the
mistake . ..." Restatement (Second) of Contracts § 152 (1981). A party
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bears the risk of mistake if it is assigned to him by the parties' agreement,
if he is aware at the time of the contract that he has limited knowledge
with respect to the mistaken facts yet nevertheless enters into the
agreement, or if the risk is allocated to him by the courts because it is
reasonable to do so. Id. § 154.
Here, the summary judgment evidence supports the district
court's determination that the parties made a mutual mistake in their
mutual belief that the parcel had no setback restrictions. Accordingly,
respondents can void the purchase agreement if they did not bear the risk
of mistake. And, as respondents argue, inquiry and constructive notice do
not precludeS mistake and are appropriately considered in the context of
risk of mistake. Hartle v. United States, 22 Cl. Ct. 843, 849 (1991)
(holding that the purchaser's constructive knowledge of a recorded "Zoning
Verification Form" places the risk of a mutual mistake on the purchaser);
see Sawyer v. Mid-Continent Petroleum Corp., 236 F.2d 518, 521 (10th Cir.
1956) ("[T]he essence of the equitable doctrine of restitution for mistake of
fact is frequently founded in 'unconscious ignorance' or forgetfulness of
material facts which could have been remedied by the exercise of due
care.").
As to inquiry notice, a preliminary title report may put a
prospective purchaser on inquiry notice of deed restrictions when the facts
in the report would lead a reasonable person to further investigate
whether deed restrictions exist. Huntington v. Mila, Inc., 119 Nev. 355,
357, 75 P.3d 354, 356 (2003); see also High v. Davis, 584 P.2d 725, 736 (Or.
1978) (noting that a preliminary title report can provide inquiry notice).
In this case, however, the preliminary title report referred to the partial
release by its title but did not give any indication that it imposed setback
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restrictions. Accordingly, we perceive no error in the district court's
determination that the preliminary title report did not put respondents on
inquiry notice as to the existence or nature of the setback restrictions. Cf.
Alfaro v. Cmty. Hints. Improvement Sys. & Planning Ass'n, Inc., 124 Cal.
Rptr. 3d 271, 281, 301 (Ct. App. 2009) (holding that purchasers were put
on inquiry notice of the existence and nature of deed restrictions when a
preliminary title report listed a document entitled "DEED
RESTRICTION").
Regarding constructive record notice, a recorded document
provides "notice to all persons of the contents thereof; and subsequent
purchasers and mortgagees shall be deemed to purchase and take with
notice." NRS 111.320. NRS 111.320 imposes constructive knowledge of
the contents of recorded documents on a subsequent purchaser. White v.
Moore, 84 Nev. 708, 709, 448 P.2d 35, 36 (1968). The parties do not
dispute that the partial release was properly recorded and indexed and
was found when Ticor Title conducted a record search. Thus, the law
deems respondents to have knowledge of the partial release's contents,
including the setback restrictions, regardless of whether the document
was improvidently titled.
Nevertheless, the district court did not err in rescinding the
contract based on mutual mistake. While respondents did have
constructive notice of the partial release, appellants were apprised of the
setback restrictions when they originally purchased the parcel and
obtained title insurance against the enforcement of the restrictions, but
did not pass this information on to respondents when they sold the parcel
to respondents. See Restatement § 154 (indicating that courts may assign
the risk of mistake when it is reasonable to do so); see also Mitchell v.
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Boyer, 774 P.2d 384, 386 (Mont. 1989) (holding that a seller's innocent
misrepresentations of property restrictions justified mutual mistake and
rescission). Moreover, respondents' negligence in failing to discover the
true facts does not preclude applying mutual mistake. Van Meter v. Bent
Constr. Co., 297 P.2d 644, 647 (Cal. 1956) (concluding that a negligent
person is not precluded from asserting mutual mistake and that an
innocent misrepresentation may support rescission for mutual mistake).
Therefore, the contract was voidable by respondents for the mutual
mistake, Restatement § 152, and the district court properly granted
respondents summary judgment and rescission of the property sale.
Wood, 121 Nev. at 729, 121 P.3d at 1029. Accordingly, we
ORDER the judgment of the district court AFFIRMED.
esle;:#1
, 4 J. , J.
Douglas Cherry
cc: Second Judicial District Court Dept. 10
Robert L. Eisenberg, Settlement Judge
Bowen Hall
Prezant & Mollath
Washoe District Court Clerk
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