In a new court of appeals case, the doctrine of mutual mistake in a home sale contract meets a motion for sanctions based on frivolous claims.
The home purchase
Niksa and Kelly Ivancevic leased a home from Ronald and Debra Reagan. The lease had an option-to-purchase clause in which the Reagans represented that they had “no notice or knowledge of [adverse] conditions affecting the property.”
The house only was about a year old when the Ivancevics commissioned a home inspection while considering whether to exercise the option to purchase. Prior to closing, they commissioned a series of mold and moisture assessments. The results of the inspection and assessments were unremarkable.
Six months after the closing, the Ivancevics noticed water leaking through a door trim and a window casing. They hired an architect to inspect the home.
They were familiar with this architect because they had previously hired him when suing a builder for water infiltration problems in their prior home. The architect opined that the cause of the moisture and condensation at their new house was incorrect design and construction of the attic ventilation system.
Based on the architect’s opinion, the Ivancevics sued the Reagans. Although the Reagans third-partied in the homebuilder who fourth-partied in the contractors, none of the third- or fourth-party defendants played a significant role in the lawsuit.
In their first claim in Ivancevic v. Reagan, the Ivancevics alleged mutual mistake. More specifically, they alleged that, unbeknownst to both parties, the roof and attic ventilation system were defective and they would not have purchased the home had they known of the defects.
The Reagans countered that the doctrine of mutual mistake was not available to the Ivancevics because the Ivancevics had knowledge of the possibility of moisture and roof defects before they exercised the option to purchase.
The Ivancevics also sued for breach of contract, claiming the Reagans represented to them that the home was free of defects, and that this misrepresentation constituted a breach of contract. The Reagans denied that they ever represented that the home was defect free.
The Reagans filed a summary judgment motion on both claims and further moved for sanctions on the grounds that both claims were frivolous.
Milwaukee County Circuit Judge Kevin Martens granted the Reagans’ motion for summary judgment on both claims but denied the motion for sanctions.
On the latter issue, Martens found that although the Ivancevics’ claims were somewhat paltry factually and legally, they had alleged enough in their complaint to permit limited discovery. While discovery had not led to persuasive development of their claims, this circumstance did not mean that the claims were frivolous.
The Ivancevics appealed Martens’s decision on the mutual mistake claim but abandoned their breach of contract claim. The Reagans in turn cross appealed Martens’s denial of their motion for sanctions based on frivolous claims.
In an opinion written by Judge Kitty Brennan, the District I Court of Appeals first reiterated the doctrine of mutual mistake from the 2003 Gielow v. Napiorkowski case: “Mutual mistake exists where both parties to a contract are unaware of the existence of a … fact material to their argument.”
Here, the necessary material fact was that the parties contemplated the home to be free of defects. But the Ivancevics produced no evidence of this. Indeed, the plain language of the option to purchase did not guarantee a defect-free home.
The court next turned to the Reagans’ cross appeal that Martens should have found that the Ivancevics’ claims had no basis in law or in fact and were therefore frivolous, entitling the Reagans to sanctions.
The court noted that while the Ivancevics’ allegations were “thin,” Martens nevertheless permitted some discovery to take place. As such, the claims were not frivolously commenced.
Whether they were frivolously continued is a different question. The court made an interesting observation: of the 50-page transcript on the Reagans’ motion for summary judgment, 47 of them were devoted to Martens discussing the claims with the parties before ultimately granting the motion.
“The depth of discussion implies that the circuit court found the claims to hold at least some merit …” the court wrote. Thus the claims were not frivolously continued.
Finally, the Reagans moved the Court of Appeals to find the Ivancevics’ appeal frivolous. The court noted that while the Ivancevics’ mutual mistake claim was not strong, it was not meritless even though unsuccessful.
“There is very little caselaw on when to apply the mutual mistake doctrine to sales contracts,” the court wrote. “The parameters of the doctrine in this context are not well-defined.”
Accordingly, the court denied the Reagans’ motion for sanctions against the Ivancevics for their appeal.
Court does its job well
This case is a good example of the Court of Appeals doing its job well. In reviewing the trial court’s decision, it clarified a doctrine that has rarely arisen in the context of home sale contracts. Given the healthy market for home purchase litigation, this is helpful to both sides of the bar.
Moreover, the court had the opportunity to decide the broader issue of frivolous claims. In a well demarcated fashion, it distinguished between frivolously commenced and frivolously continued claims. Further, it decided the less-common issue of frivolous appeals in a succinct and effective manner.
The case will be published and properly so as it instructs bench and bar well.