Key Design, Inc. v. Moser , 138 Wash. 2d 875 ( 1999 )

Guy, C.J.

— This is an action to enforce a real estate purchase and sale agreement. We are asked to overrule our rule that a contract for the sale of real property which does not contain a correct legal description of the property violates the statute of frauds. Additionally, we consider whether we should recognize an exception to the above rule where the parties admit in court documents to a legal description of the property inadequately described in the contract. Finally, we are asked to allow the reformation of the contract in this case due to mutual mistake.

We reaffirm the rule requiring that an agreement involving a sale or conveyance of platted real property must contain a correct legal description. We do not recognize a judicial admissions exception to that rule. We hold that the record does not support reformation of the agreement due to mutual mistake. We affirm the trial court’s rulings with respect to the real estate purchase and sale agreement.

The other agreement between the parties, an agreement for the purchase of personal property, was not specifically considered by the trial court because it was not clearly before that court on summary judgment. We reverse the trial court’s dismissal of appellant Key Design’s claims with respect to the personal property agreement and remand to superior court for a determination of issues with respect to this agreement.

FACTS

Vince and Joni Moser purchased the property that is the subject of this action, Vince’s Fitness Center in downtown Everett, in August 1990. By mid-1996 the Mosers wanted to sell the fitness center. Mr. Moser approached Michael Miller, a patron of the center, about purchasing the gym’s real and personal property. Mr. Miller was part owner and secretary of Key Design, Inc., a corporation which invested in real property. Mr. Moser and Mr. Miller negotiated the terms of the purchase of the fitness center during the last six months of 1996 and, in December 1996, Key Design presented Mr. Moser with an earnest money agreement on the real property and a purchase agreement for the gym’s equipment.¹ The earnest money agreement is titled “Beal Estate Purchase and Sale Agreement” and is on a preprinted form.

The agreement is signed by Mr. Miller, on behalf of Key Design, by Joni Moser, and by Vince Moser and states in pertinent part:²

REAL ESTATE PURCHASE AND SALE AGREEMENT (Commercial and/or Investment)

(with earnest money provision)

THIS IS A LEGALLY BINDING CONTRACT. READ BOTH FRONT AND BACK CAREFULLY BEFORE SIGNING.

Everett, Washington Dec 23, 1996

The undersigned Purchaser, KEY DESIGN, INC, agrees to purchase and the undersigned Seller agrees to sell, on the following terms, the property commonly known as VINCE’S FITNESS CENTER 1711 HEWITT Street in the City of EVERETT, SNOHOMISH County, Washington, legally described as (full and complete legal description must be inserted prior to execution by parties):

[Left Blank]

1. PURCHASE PRICE. The total purchase price is ONE HUNDRED FORTY THOUSAND AND NO HOP dollars ($140,000.00) payable as follows:

[Left Blank]

2. FINANCING. The offer [Z] is [ ] is not conditioned upon Purchaser obtaining financing. . . .

3. CONTINGENCIES. This agreement is conditioned upon A SATISFACTORY BUILDING INSPECTION (NO STRUCTURAL DEFECTS, HAZARDOUS MATERIALS, ETC), OBTAINING A PURCHASE LOAN, AND SATISFACTORY REPORTS FROM FIRE AND BUILDING DEPT.

5. CLOSING OF SALE. This sale shall be closed on or before MARCH 14, 1997. . . .

7. POSSESSION. Purchaser shall be entitled to possession ON OR BEFORE CLOSING. . . .

12. EARNEST MONEY RECEIPT. Agent hereby receipts for earnest money in the amount of $ 500.00 from the Purchaser in the form of [ ] cash; [Z] personal check; [ ] cashier’s check; [ ] promissory note ....

13. AGREEMENT TO PURCHASE AND TIME LIMIT FOR ACCEPTANCE. Purchaser offers to purchase the property on the above terms and conditions. . . .

14. SELLERS’ ACCEPTANCE AND BROKERAGE AGREEMENT. Seller agrees to sell the property on the terms and conditions specified herein ....

Clerk’s Papers at 399.

The agreement was signed by the Mosers on December 31, 1996. On the same day Key Design signed a separate agreement of purchase to buy the equipment at Vince’s Fitness Center for $15,000 and put down $10,000 toward payment.

Mr. Moser testified by deposition that he considered the agreement just part of a negotiation process, not a legally binding agreement. He also was anxious to receive cash for the property and complained to Mr. Miller that he wanted to close the deal as soon as possible.

On or around February 1, 1997, Mr. Moser was approached by a second potential buyer of the property. On February 2, Mr. Moser signed an earnest money agreement, agreeing to sell the Fitness Center to Creighton Kolbeck for $185,000.

On February 3, 1997, Key Design paid the $500 earnest money due under the December 31, 1996 agreement.

In a letter dated February 13, 1997, Mr. Moser, through his (and Mr. Kolbeck’s) attorney, informed Key Design that he considered the earnest money agreement executed on December 31, 1996, to be void because it did not contain a legal description of the property, and because the purchase price terms were ambiguous. Key Design responded by recording a Memorandum of Real Estate Purchase Agreement.

On March 4, 1997, the Mosers closed the real estate transaction with Creighton Kolbeck. Key Design then sued the Mosers and the Kolbecks for breach of contract, reformation of contract, specific performance, to set aside the deed to Kolbeck, and for tortious interference with contractual relations or business opportunity. The complaint states that the property involved is

commonly described as Vince’s Fitness Center, 1711 Hewitt, Everett, Washington, and more particularly described as:

Lots 14 and 15, Block 666, Plat of Everett, according to the plat thereof recorded in Volume 3 of Plats, Page 32, Records of Snohomish County, Washington.

Clerk’s Papers at 371.

In their answer, the Mosers and Kolbecks admit to the legal description of the property as stated in the complaint.

The Mosers and the Kolbecks moved for summary judgment on all of Key Design’s claims and argued that the earnest money agreement between the Mosers and Key Design was unenforceable because it violated the statute of frauds in that it failed to set forth a legal description of the property. Key Design filed a cross motion for judgment on the pleadings, arguing the judicial admissions exception to the statute of frauds should be applied in this case.

The trial court found that the earnest money agreement between the Mosers and Key Design did not satisfy the requirements of the statute of frauds and did not contain all essential terms necessary for the formation of an enforceable agreement for the purchase and sale of real property. The trial court granted the defendants’ motion, dismissing all of Key Design’s claims and quieting title to the property in Creighton Kolbeck. Key Design appealed directly to this court, and we accepted review.

ISSUES

1. Should this court overrule Martin v. Seigel, 35 Wn.2d 223, 212 P.2d 107, 23 A.L.R.2d 1 (1949), and hold that the statute of frauds is satisfied if an agreement for the sale of property includes a description of the property by business name, street address, city or town, county, and state?

2. Should the court recognize a “judicial admissions” exception to the Martin v. Seigel rule and hold that a description of the property by business name, street address, city or town, county, and state is sufficient to satisfy the statute of frauds if the seller admits, in court documents, that the property, as legally defined, is the same as that described in the agreement?

3. Is the agreement subject to reformation, so as to add the legal description of the property, based on mutual mistake of the parties?

ANALYSIS

Appellant Key Design asks this court to overrule Martin v. Seigel. The trial court granted summary judgment to respondents Mosers and Kolbecks because it ruled unenforceable an earnest money agreement which violated the statute of frauds by failing to include an adequate legal description of the property at issue. Key Design asserts that the rule in Martin, which requires legal descriptions in agreements involving the conveyance of real property, is harsh and outdated and produces inconsistency and uncertainty. Consequently, in Key Design’s view, the rule should be limited or changed.

The statute of frauds which governs real property states: “Every conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate, shall be by deed.” RCW 4.04.010. Prior to Martin, a line of cases elaborated on what this and other provisions of the statute of frauds require: “In a long line of decisions, we have held that, in order to comply with the statute of frauds, a contract or deed for the conveyance of land must contain a description of the land sufficiently definite to locate it without recourse to oral testimony.” Martinson v. Cruikshank, 3 Wn.2d 565, 567, 101 P.2d 604, (1940) (citing cases beginning with Rochester v. Estate of Yesler, 6 Wash. 114, 32 P. 1057 (1893)). The Martin court applied this provision to earnest money agreements and further clarified the requirements of the statute:

In the interests of continuity and clarity of the law of this state with respect to legal descriptions, we hereby hold that every contract or agreement involving a sale or conveyance of platted real property must contain, in addition to the other requirements of the statute of frauds, the description of such property by the correct lot number(s), block number, addition, city, county, and state.

Martin, 35 Wn.2d at 229.

The rule in Martin v. Seigel has remained the law for fifty years. See also Schweiter v. Halsey, 57 Wn.2d 707, 359 P.2d 821 (1961); Lilygren v. Rogers, 1 Wn. App. 6, 459 P.2d 44 (1969); Garrett v. Shriners Hosps. for Crippled Children, 13 Wn. App. 77, 533 P.2d 144 (1975); Dunbabin v. Allen Realty Co., 26 Wn. App. 660, 613 P.2d 570 (1980); Halbert v. Forney, 88 Wn. App. 669, 945 P.2d 1137 (1997).

There is value in maintaining a well-settled rule: “we endeavor to honor the principle of stare decisis, which ‘promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process.’ ” Keene v. Edie, 131 Wn.2d 822, 831, 935 P.2d 588 (1997) (quoting Payne v. Tennessee, 501 U.S. 808, 827, 111 S. Ct. 2597, 115 L. Ed. 2d 720 (1991)).

We will not overturn an established rule unless the party challenging it makes a clear showing that the rule is incorrect and harmful. State v. Berlin, 133 Wn.2d 541, 547, 947 P.2d 700 (1997). An example of such a showing occurred in In re Stranger Creek, 77 Wn.2d 649, 466 P.2d 508 (1970), in which we overruled two prior cases when the Department of Natural Resources showed that the holdings worked to the public detriment by destroying the benefits of the best use of the State’s trust lands and that the holdings were not compelled by the state constitution. In re Stranger Creek, 77 Wn.2d at 654, 657. Key Design failed to utilize the established test for challenging a rule and did not present this court with an analysis of how the Martin rule was incorrect and harmful.

Key Design did present criticisms of the Martin rule which did not follow the guidelines set forth in In re Stranger Creek. Key Design complained first about the rule being extreme, unusually strict, and not generally accepted or favored, and second about its producing inconsistency and uncertainty instead of clarity. Key Design’s complaints about the strictness of the rule are not new, and the Martin court itself considered and rejected them:

It will thus be seen that this court is at variance with the more liberal rule which permits parol testimony to explain what particular property the parties had in mind when they contracted to transfer real property described merely by a street number. We do not care to recede from the rule adopted by us, which has been stated in a long line of decisions over a number of years, and known and followed by the members of the bar and title men. We do not apologize for the rule. We feel that it is fair and just to require people dealing with real estate to properly and adequately describe it, so that courts may not be compelled to resort to extrinsic evidence in order to find out what was in the minds of the contracting parties.

Martin, 35 Wn.2d at 228.

Thus, the Martin court already recognized the strictness of the rule and declined to change it. One can gather that the court felt very strongly about its legal description requirement. 18 William B. Stoebuck, Washington Practice, Real Estate: Transactions § 12.3.5, at 4 (Supp. 1999). Furthermore, Key Design failed to show that this strictness is harmful or detrimental.

Key Design argues that the many judicially-created exceptions to the rule in Martin v. Seigel have produced uncertainty and inconsistency rather than clarity. But the existence of these exceptions, which mitigate the strictness of the rule, do not diminish the simple fact that a correct legal description will always be acceptable without further specialized knowledge of the exceptions. Moreover, Key Design proposes no alternative rule which would provide the clarity and certainty it says the Martin rule lacks. Finally, Key Design’s discussion of clarity and uncertainty does not demonstrate how the rule’s purported lack of clarity is harmful.

In the present case, there was no uncertainty about the law’s requirements. Both parties were on notice that the Martin rule applied because the preprinted form contract contained the phrase “full and complete legal description must be inserted prior to execution by parties.”

Because there has been no clear showing that the rule in Martin v. Seigel is incorrect and harmful and because we wish to retain the clarity of the rule as well as consistency with prior decisions, we decline to depart from the rule enunciated in Martin.

Alternatively, Key Design asks this court to recognize a judicial admissions exception to the legal description requirement for contracts involving the sale of land. Judicial admissions are accepted in many areas of law. In the statute of frauds context, the judicial admissions doctrine allows courts to enforce oral agreements involving title to real estate as long as the party against whom enforcement is sought has admitted in court or during discovery that an oral agreement existed. Peter J. Shedd, The Judicial Admissions Exception to the Statute of Frauds in Real Estate Transactions, 19 Real Est. L.J. 232, 232 (1991). A broader conception of the exception includes not only admissions that the contract existed but also admissions that the elements of a contract existed while not admitting to the contract itself. Smith v. Boyd, 553 A.2d 131, 133 (R.I. 1989). The theory underlying the broader conception is that any admission made in legal documents may constitute a writing sufficient to satisfy the statute of frauds. 2 E. Allan Farnsworth, Contracts § 6.7, at 147-48 (1998). We decline to adopt the judicial admissions exception to the Martin rule.

In the context of the statute of frauds, the judicial admissions doctrine exists as part of the Uniform Commercial Code and as judicially created in some non-U. C.C. factual settings, which often involve contracts for the sale of real property. A contract for the sale of goods which does not meet all the requirements of the statute of frauds but which is otherwise valid is enforceable “if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made.” RCW 62A.2-201(3)(b). The U.C.C. limits the exception to cases in which a party admits that a contract existed.

In Washington, two Court of Appeals cases have adopted the judicial admissions doctrine as applied to real property. In Powers v. Hastings, 20 Wn. App. 837, 582 P.2d 897 (1978), aff’d, 93 Wn.2d 709, 612 P.2d 371 (1980), the court held that the defendants’ admission of the existence of a lease with an option to purchase constitutes a sufficient writing or memorandum to satisfy the statute of frauds. Powers, 20 Wn. App. at 842, 846. Key Design, however, relies instead on the Court of Appeals’ decision in Sea-Van Invs. Assocs. v. Hamilton, 71 Wn. App. 537, 861 P.2d 485 (1993), rev’d, 125 Wn.2d 120, 881 P.2d 1035 (1994), a case squarely on point since it involved an earnest money agreement. The Court of Appeals in Sea-Van held that “the statute of frauds requirement of a full legal description within a contract for the sale of real property need not be met where the party claiming statute of frauds protection has admitted in court documents the legal description of the property.” Sea-Van, 71 Wn. App. at 546-47. On review to this court, we refused to affirm the rule announced by the Court of Appeals in Sea-Van.

This court has consistently passed up opportunities to recognize the judicial admissions exception. We affirmed Powers, 93 Wn.2d 709, on other grounds. When reversing Sea-Van, we left the viability of the judicial admissions doctrine for another day. Sea-Van, 125 Wn.2d 120. Later we were more clear that we had not adopted the doctrine: “We have not previously recognized such an exception, and do not do so here.” Berg v. Ting, 125 Wn.2d 544, 562, 886 P.2d 564 (1995).

Key Design urges that we adopt the judicial admissions doctrine in this case. In the context of the rule in Martin v. Seigel, such a recognition would involve holding that admissions in pleadings, depositions, or testimony may substitute for a legal description in an agreement. First, Key Design argues that this state will be bucking the modern trend in legal doctrine if we fail to recognize the judicial admissions exception. Second, it argues that the judicial admissions doctrine furthers the purpose of the statute of frauds. The purpose of the statute is to prevent a fraud, not perpetuate one, and the courts of this state are empowered to disregard the statute when necessary to prevent a gross fraud from being practiced. Powers, 20 Wn. App. at 842.

Key Design’s claim that this court should become part of a trend by recognizing judicial admissions has several weaknesses. The trend is virtually nonexistent. Although there was a trend toward recognition in the 1970s, only one state adopted a broad-based exception in the 1980s. See Shedd, supra, at 241. As of 1991, only twelve states and the District of Columbia had adopted the judicial admissions doctrine. Shedd, supra, at 243. Moreover, in some of these jurisdictions, such as Maryland (Trossbach v. Trossbach, 185 Md. 47, 42 A.2d 905 (1945); Sealock v. Hackley, 186 Md. 49, 45 A.2d 744 (1946)), Pennsylvania (Zlotziver v. Zlotziver, 355 Pa. 299, 49 A.2d 779 (1946)), and Utah (Bentley v. Potter, 694 P.2d 617 (Utah 1984)), an “admission” refers to admitting the existence of an agreement. An admission would not include admitting to a term of an agreement while denying the existence of the contract. These cases would not support the case at bench, where the seller admits the legal description but denies the existence of the agreement as a whole. Even Powers, the Court of Appeals’ case from our jurisdiction, based its holding on its facts, in which the defendant admitted the existence of the lease on six different occasions, 20 Wn. App. at 842, and supports only an admissions doctrine limited to a complete admission of the contract. In Powers, 20 Wn. App. at 842, the Court of Appeals cited as authority cases such as Trossbach and Zlotziver, in which defendants admitted the existence of contracts, and quoted and emphasized this excerpt from a treatise: “A complete admission in court by the party to be charged should dispense with the necessity of any writing whatever.” 2 Arthur Linton Corbin, Corbin on Contracts § 498, at 683 (1950). Finally, because the Court of Appeals’ case in Sea-Van has been reversed and because the Martin rule is not followed in other jurisdictions, no case supports the proposition at issue here: that a legal description of property in court documents constitutes a judicial admission sufficient to satisfy the statute of frauds.

Allowing a party to make a judicial admission while also pleading the statute of frauds does not necessarily perpetrate a fraud. The majority rule permits a defendant who admits the oral contract to insist at the same time upon the statute of frauds. 72 Am. Jur. 2d Statute of Frauds § 307, at 828 (1974). The defendant is simply carrying out one of the purposes of the statute, which is to forbid the enforcement of verbal contracts for the sale of real property. See Cornett v. Clere, 193 Ky. 590, 236 S.W. 1036, 1037, 22 A.L.R. 720 (1922). Given that the statute prohibits such oral contracts, it is impossible to see how one can be bound by a contract the statute declares void. R.E.H., Annotation, Admission by Pleading of a Parol Contract as Preventing Pleader from Taking Advantage of the Statute of Frauds, 22 A.L.R. 723 (1923). The defendant is not perpetrating a fraud upon the court when he exercises his legal right under the statute. The narrower issue in the case before us presents us with analogous reasoning. The defendant who admits to the legal description of a property while pleading the statute of frauds carries out the purpose of the Martin rule, which is to encourage parties to include such proper descriptions in their contracts so that courts will not have to resort to extrinsic evidence in order to find out what was in their minds. Martin, 35 Wn.2d at 228. A defendant is not perpetrating a fraud upon the court when he honestly admits to the legal description while insisting that a land contract without a proper description is unenforceable under Martin.

The statute of frauds in general provides a channeling function, as well as the evidentiary function just discussed. Restatement (Second) of Contracts § 110, at 286 (1981). The formal requirements of the statute for land contracts helps to create a climate in which parties often regard their agreements as tentative until there is a signed writing. Restatement, supra. Similarly in this case, Mr. Moser testified that he considered the two earnest money agreements to be part of the negotiating process. Under the Martin rule, he is entitled to consider the agreement to be tentative if it does not contain a legal description.

Finally, having affirmed the rule in Martin, which seeks to retain clarity in the formalities required for a conveyance of real property, this court would be acting in a contrary manner by also creating a new exception to that rule. Not adopting the judicial admissions doctrine is consistent with our decision to reaffirm the rule in Martin.

Accordingly, we continue to decline to adopt a judicial admissions exception to the Martin rule requiring that contracts for the sale of real property contain a legal description of the property.

Key Design argues that the failure of the parties to include the legal description was a mutual mistake, and that this court should reform the agreement to correct that mistake.

The general rule in this state is that an inadequate legal description is not subject to reformation. Halbert, 88 Wn. App. at 673; Snyder v. Peterson, 62 Wn. App. 522, 525-26, 814 P.2d 1204 (1991). However, reformation is available if the inadequate legal description is the result of a scrivener’s error or a mutual mistake of the parties. Berg, 125 Wn.2d at 554. Conveyances of real property may be reformed on the ground of mutual mistake where such mistake is indicated by clear and convincing evidence. Lofberg v. Viles, 39 Wn.2d 493, 498, 236 P.2d 768 (1951). The evidence must show that the intention of the parties was identical at the time of the transaction and that the written agreement did not express that intention. Tenco, Inc. v. Manning, 59 Wn.2d 479, 483, 368 P.2d 372 (1962); Williams v. Fulton, 30 Wn. App. 173, 176, 632 P.2d 920 (1981). Reformation is not appropriate if the agreement expresses the intent of the parties but the legal description is merely incomplete. Williams, 30 Wn. App. at 176-77; Halbert, 88 Wn. App. at 673.

The agreement now before the court includes a statement that a “full and complete legal description must be inserted prior to execution.” The record shows that the parties intended to and did include the name of the business and street address to describe the property that was the subject of the agreement. Key Design intended to include a “proper” description of the property and was not aware that a legal description was necessary at the time of execution. Vince and Joni Moser both state that they did not intend to include a legal description because they did not believe the agreement was meant to be binding; instead, it was considered a step in the negotiation for the sale of the property.

The evidence in the record on appeal does not clearly and convincingly support a reformation of the agreement based on mutual mistake.

CONCLUSION

Since we retain the Martin rule, decline to recognize a judicial admissions exception to it, and hold the evidence does not support reformation due to mutual mistake, the absence of a legal description of the property in the real estate purchase and sale agreement makes that agreement unenforceable. We affirm the trial court’s rulings with respect to this agreement.

We reverse the trial court’s ruling with respect to the purchase agreement for the gym’s equipment and remand for a determination of issues arising out of this agreement.

Durham, Smith, Johnson, and Ireland, JJ., concur.

1 Two earnest money agreements were prepared during December 1996. The first expired before it was signed by Joni Moser. It is only the second set of agreements that is now before the court.

2 Handwritten additions to the form are indicated by italics and underlining.