Case Title: CAPITAL HILL SHOPPING CENTER v MI

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1977-09-08T00:00:00Z

Document:
No. 1.3233 I N THE SUPREME COURT O F THE STATE O F MONTANA 1977 CAPITAL HILL SHOPPING CENTER ASSOCIATES, a l i m i t e d p a r t n e r s h i p , Defendant and Third-Party P l a i n t i f f and Appellant, W. R. MILES, J R . , Third-Party Defendant, and Respondent. Appeal from: D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t , Honorable P e t e r G. Meloy, Judge p r e s i d i n g . Counsel of Record: For Appellant: Loble, P i c o t t e , Pauly, Helena, Montana L e s t e r Loble, I1 argued, Helena, Montana For Respondent: Mahan and S t r o p e , Helena, Montana Thomas H. Mahan argued, Helena, Montana Submitted: January 18, 1977 c q ? :. ,$j5[ F i l e d : '- ' Hon. Harold W. Coder, J r . , d i s t r i c t judge, delivered the Opinion of the Court. This Court i s asked t o review a determination by the d i s - t r i c t court, Lewis and Clark County, denying l i a b i l i t y of s e l l e r f o r attorney fees incurred by the purchaser of a shopping center i n defense of a claim by a tenant asserting an exclusive lease. The f a c t s , o r so much of them a s are necessary t o s a t i s f y t h i s inquiry are: Third party defendant and respondent W. R. Miles, Jr. (Miles) promoted and developed the Capital H i l l Shopping Center i n Helena and i n 1964 leased space t o W. A . Brown, Jr . (Brown) , f o r the operation of a card and g i f t shop. The lease was renewed in 1970 f o r a f i v e year term. During Brown's tenancy he requested and received from Miles an o r a l agreement t h a t during the l i f e of t h i s tenancy, Brown would have the only card and g i f t shop i n the center. I n June 1971, Miles sold the center t o appellant, Capital H i l l Shopping Center Associates for $1.6 million and an addi- t i o n a l $150,000 t o serve a s a consultant t o Capital H i l l f o r a-period of 5 years. The contract for s a l e executed by Miles, a s s e l l e r , and Capital H i l l , a s buyer contained, i n t e r a l i a , the following: "4. Warranties. S e l l e r represents and warrants as t o the following, which warranties s h a l l survive the closing hereunder * * *: "* 7 ' c * "4.10 9~ * >k There a r e no f a c t s i n existence on the date hereof and known t o the S e l l e r which might reasonably serve a s a basis f o r any material l i a b i l i - t i e s o r obligations not disclosed i n t h i s agreement o r i n exhibits hereto. "4.1 S e l l e r in c e r t i f i c a 3 N o representations o r warranties by t h i s agreement o r any document, statement, t e o r schedule furnished o r t o be furnished t o the Buyer pursuant hereto o r i n connection with the transactions contempla ted hereby, contain or w i l l con- t a i n any untrue statements of a material f a c t o r w i l l omit t o s t a t e a material f a c t necessary t o make the statements o r f a c t s contained therein not misleading. Except a s is expressly herein otherwise provided, the representations and warranties of the S e l l e r a s s e t f o r t h i n t h i s agreement s h a l l be t r u e on and a s of the date hereof and the closing date a s though such representations and warranties were made on and a s of each such time. "5. Indemnification. The S e l l e r agrees t o and s h a l l indemnify the Buyer, i t s successors and assigns, - - i n respect of each of the following matters, which indemnification s h a l l be i n addition t o any other r i g h t s of Buyer hereunder: "5.2 Any damage or deficiency resulting from any misrepresentation, a breach of warranty, o r n o n f u l f i l l - ment of any agreement on the p a r t of the S e l l e r under t h i s agreement, o r from any misrepresentation i n o r omission from any instrument furnished o r t o be furnished t o the Buyer hereunder or i n any exhibit t o t h i s agree- ment, except t h a t such idemnification under t h i s sub- paragraph s h a l l not exceed the greater of the t o t a l amount owed t o S e l l e r pursuant t o t h i s agreement a t the date of notice t o S e l l e r of such damage o r deficiency. "5.3 A l l costs and expenses r e l a t i v e t o any actions, s u i t s , proceedings, demands, assessments o r judgment incident t o any of the foregoing, including reasonable attorney's fees. "8. Possession; Closing. "8.4 When a l l such prorations have been made o r agreed upon, the p a r t i e s s h a l l complete the closing of the s a l e transaction by delivering: "(a) To the Buyer " ( i i ) A l l leases, subleases o r other documents respecting the Shopping Center. "(v) A l l other agreements and leases o r sub- leases affecting the Shopping Center (or copies of t h e same c e r t i f i e d by S e l l e r oq the holder thereof) .I' I Subsequently, Capital H i l l cancelled an existing lease l and on July 30, 1972 executed a prelease agreement with a party named Hatch's f o r the purpose of opening a card and g i f t shop. Whereupon Brown n o t i f i e d Capital H i l l o r a l l y , and l a t e r i n writing, t h a t he possessed an "exclusive" lease. Notwith- standing such notice, Capital H i l l proceeded under i t s prelease agreement and finalized i t s lease with Hatchl,s on August 15, 1972. Brown then sued Capital H i l l ; Capital H i l l , i n turn, tendered the defense t o Miles, which tender was refused. Capital H i l l then joined Miles a s t h i r d party defendant. Before t r i a l , the issues raised by Capital ill' s ' t h i r d - party pleadings were severed by s t i p u l a t i o n , and the jury then returned a verdict i n favor of Capital H i l l against Brown. Thereafter, by bench t r i a l , the issues involving Miles' l i a b i l i t y t o Capital H i l l were resolved i n favor of Miles. The t r i a l court found: ( I ) "Miles advised Brown t h a t he, (Brown) would, a t and during the time he was a tenant, have the only card and g i f t shop i n the center. Brown believed t h a t he had an exclusive t o the only card and g i f t s t o r e based upon the con- versation with Miles'!, and (2) " A t the time of the negotiations f o r s a l e t o Capital, Miles represented t h a t there were no r e s t r i c - t i v e clauses i n Brown's lease. Capital understood a t t h a t time, and up t o the time Brown informed Capital t h a t he had an exclu- sive, t h a t there was no exclusive i n ~ r o w n ' s lease." Respondent Miles i n support of the t r i a l c o u r t ' s deter- mination, argues: a) That the o r a l agreement between Miles and Brown was not enforceable against Capital H i l l , because the jury said so; t h a t , given i t s v a l i d i t y between Miles and Brown, the o r a l agreement terminated upon the s a l e by Miles of the center t o Capital H i l l ; therefore, without an enforceable exclusive r i g h t there was no violation by Miles of the indemnity agreement; b) That such exclusive r i g h t is void under the s t a t u t e of frauds since it was not reduced t o writing; c ) Assuming t h a t Miles' f a i l u r e t o disclose violated the indemnity agreement, h i s l i a b i l i t y was cancelled by ~ c u w n ' s notice t o Capital H i l l one year a f t e r the s a l e , and t h a t Capital H i l l , therefore, was responsible f o r i t s own damages inasmuch it could have avoided the s u i t by leasing t o someone other than a card or g i f t shop, thus avoiding any c o n f l i c t with Brown's i n t e r e s t . The vice of t h i s rationale, a s we view it, i s t h a t the o r a l agreement i s declared t o be dead f o r the purpose of relieving Miles of h i s l i a b i l i t y a s an indemnitor, but must immediately t h e r e a f t e r be resurrected t o support the proposi- tion t h a t Capital H i l l must avoid it by leasing t o some one other than a card and g i f t shop. Thus, what we have is an obligation on the part of Capital H i l l t o l i t i g a t e the v a l i d i t y of a verbal agreement t o which it was not a party; the outcome served t o s t r i p Capital H i l l , as the v i c t o r , of i t s warranties and indemnifications f o r which it had bargained under i t s s a l e agreement. Capital H i l l argues that Miles' failure to disclose t o it, during the sale negotiations, the existence of the oral he agreement between/and Brown regarding the exclusive nature of Brown's lease was violative of the warranty provisions of their sale agreement; that Miles' failure t o accept the tender of defense of Brown's s u i t against it constituted a breach by Miles of h i s duty t o indemnify; and the notice by Brown t o Capital H i l l one year a f t e r the sale did not cure Miles' defalca- tions. W e agree. I n i t i a l l y , we believe the existence of the oral agreement between Miles and Brown was a fact of sufficient materiality t o require disclosure t o Capital H i l l during the sale negotia- tions and the failure of Miles to do so was an omission within the purview of the warranty provisions s e t out above. Unquestionably, had the fact of t h i s agreement been known t o Capital H i l l a t the time of the negotiations, i t s existence would have weighed heavily upon Capital ill's determinations t o enter into the purchase and its nondisclosure served no interest other than that of Miles. The warranty and indemnity provisions were i n that agreement t o protect the buyer from the very thing that came t o pass---the assertion of a claim by a third party against the buyer, which claim draws i t s sustenance from an unwritten and unrecorded agreement between such third party and the seller. A covenant of warranty is for the purpose of indemnifying the purchaser against a loss or injury he may sustain by reason of a defect i n the vendor's t i t l e . Davis v. Andrews, (Texas Ct.. of Appeals 1962), 361 S.W.2d 419. This i s , w e think, expressive of the general rule. Fagan v. Walters, 115 Wash. 454, 197 P. 635 (1921); Jones v. Grow Investment and Mortgage Co., 1 1 Utah 2d 326, 358 P.2d 909, 911 (1961); Matlock v. Wheeler, (Ckla. 1957), 306 P.2d 325; Newmyer v. Roush, 21 Idaho 106, 120 P. 464 (1912); Reinhardt v. Meyer, 153 Colo. 296, 385 P.2d 597 (1963). Nor do we believe t h a t Brown's notice t o Capital H i l l of h i s purported exclusive lease, coming, a s it did, some t h i r t e e n months a f t e r the s a l e by Miles t o Capital H i l l could e f f e c t i v e l y relieve Miles of h i s l i a b i l i t i e s under the express warranty and indemnity provisions of the s a l e agreement. For whatever e l s e may be said of Brown's communication, it is s u f f i c i e n t t o observe t h a t , a s a notice, it came too l a t e . Nor do we believe the indemnity language s e t out above, can be construed t o mean anything other than what it plainly s e t s out. ~ r o w n ' s s u i t against Capital H i l l was f o r the enforcement of some r i g h t which arose under an alleged agreement between Brown and Miles. A s an indemnitor under the s a l e s agreement, Miles' l i a b i l i t y t o Capital H i l l arose a t the time of the execution of t h a t agreement, and no subsequent notice, o r cornrnuni- cation by Brown t o Capital H i l l would serve t o v i t i a t e t h a t l i a b i l i t y . A t the t i m e of ~ r o w n ' s s u i t against Capital H i l l , and the tender of defense by Capital H i l l t o Miles, Miles' obligation arose t o defend Capital i ill's t i t l e against such claim. A s an indemnitor, Miles was not e n t i t l e d , a s a matter of subjective judgment, t o make a determination t h a t Brown's claim was without merit; nor was he e n t i t l e d a t t h a t time t o make an independent determination regarding h i s l i a b i l i t y t o Capital H i l l , a s an indemnitor under the terms of the s a l e s agreement. Left i n i t s present stance, t h i s case would have Capital H i l l indemnifying Miles notwithstanding the express contractual l i a b i l i t i e s of Miles f o r which Capital H i l l bargained and paid consideration. I n view of the e x p l i c i t tender of the defense by Capital H i l l and i t s rejection by Miles, and the subsequent t h i r d party pleading, we need not consider notice, i f any, which would be required t o r a i s e Miles' l i a b i l i t y a s an indemnitor. Ireland v. Linn County Bank, 103 Kan. 618, 176 P. 103, 2 A L R 184 (1918); Miller v. N e w York O i l Co., 34 Wyo. 272, 243 P. 118 (1926); Boston and Maine Railroad v. Bethlehem S t e e l , 311 F.2d 847, 849 (1963); Henderson Realty v. Mesa Paving Company, 27 Ariz. App. 299, 554 P.2d 895, 897 (1976). Nor need we be concerned regarding the v a l i d i t y of contracts f o r indemnification; and t h a t they a r e t o be " l i b e r a l l y construed i n favor of the party intended t o be indemnified." Lesofski v. Ravalli Co, Electric Coop., 151 Mont. 104, 107, 439 P.2d 370 (1968), and a u t h o r i t i e s c i t e d therein. The decision of the d i s t r i c t court is reversed and dismissed. Judge, s i t t i n g f o r M r . J u s t i c e John Conway Harrison. W e Concur: - -, n , 1 ,"" :.;/A& Chief ~ u s t l c e I N T H E SUPREME COURT O F THE STATE OF M O N T A N A No. 13233 CAPITAL HILL SHOPPING CENTER, ASSOCIATES, a l i m i t e d p a r t n e r s h i p , Defendant and Third-Party P l a i n t i f f and Appellant, V S . W. R. MILES, J R . , ~ h i r d - p a r t y Defendant, OCT- 3 I977 and ~ e s p o n d e n t . " CLERK OF SUPREF,$,riE COURT S-TAT-E QE iMxxax.gp!A O R D E R IT IS O R D E R E D t h a t t h e l a s t sentence of t h e above named opinion i s d e l e t e d and t h e following paragraph i n s e r t e d i n its place: "The d e c i s i o n of t h e d i s t r i c t c o u r t i s reversed and t h e cause remanded t o t h e d i s t r i c t c o u r t f o r t h e determination of a reasonable a t t o r n e y s f e e f o r p u r c h a s e r ' s a t t o r n e y t o be paid by seller and e n t r y of judgment thereon." D A T E D t h i a g ? ! a * of September, 1977. Hon. Harold W. Coder, District \ Judge, s i t t i n g i n p l a c e of M r . J u s t i c e John Conway Harrison. r-- - 7 /"