Title: MCCARTY v LINCOLN GREEN INC

State: montana

Issuer: Montana Supreme Court

Document:

No. 80-68 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980 ROGER J. McCARTY and JANICE L. McCARTY and CAROL A. McCARTY, Husband and wife, Plaintiffs and Respondents, LINCOLN GREEN, INC., a Montana corporation, JAMES L. LEE, BERT A . NELSON and BENITA NELSON, Defendants, Third-Party Plaintiffs and Respondents VS. RAY I. BERRYMAN and AMERICAN BONDING COMPANY, Third-Party Defendants and Appellants. Appeal from: District Court of the Fourth Judicial District, In and for the County of Ravalli. Honorable Jack L. Green, Judge presiding. Counsel of Record: For Appellants: Jon E. Ellingson argued, Missoula, Montana For Respondents: Datsopoulos, MacDonald and Lind, Missoula, Montana Ronald MacDonald argued, Missoula, Montana Submitted: November 19, 1980 Decided: I d f C 1 9 1 9 8 4 Filed: R - C 1 " . 9 1980 Mr. Justice John C. Sheehy delivered the Opinion of the Court. Ray I. Berryman, a real estate agent,as third party defendant, appeals from a judgment in the Fourth Judicial District Court, Missoula County, in favor of Lincoln Green, Inc., James L. Lee, Bert A. Nelson and Benita Nelson (Lincoln Green, Inc.), third party plaintiffs. Berryman raises these issues fcr review: (1) A principal may not be held liable to a third party for negligence of its agent where there is no proof of the agent's liability to the third party. (2) The District Court erred in concluding that the principal's agent was negligent through his acts or omissions or by misrepresentation. (3) A real estate agent's negligence may not be established without proof that he failed to use the standard of care exercised ordinarily by real estate agents in the community . (4) The District Court improperly assessed damages against Berryman in the sum of $7,169.58, plus attorney's fees of $2,200.00. After due consideration, we conclude that the judgment of the District Court should be affirmed. In 1975, Lincoln Green, Inc. was offering for sale parcels of a subdivided ranch located in ~avalli County Montana. As part of its selling effort, Lincoln Green, Inc. permitted licensed real estate agents to show various parcels which were for sale, without entering into a listing agreement with such real estate agents. If a real estate agent showed any of the parcels and found a buyer, the agent who had shown the property presented a buy-sell agreement, executed by the proposed purchaser to Lincoln Green, Inc., for its approval and signature. I n 1975, Berryman presented t o Lincoln Green, Inc., a buy-sell agreement executed by Roger J. McCarty, J a n i c e L. McCarty, ~ o b e r t J. McCarty and Carol McCarty (McCartys) a s purchasers. O n September 1, 1975, Lincoln Green, Inc. and McCartys entered i n t o a c o n t r a c t f o r deed f o r t h e s a l e and purchase of a l o t which was described i n t h e c o n t r a c t a s " t h e south one-half of Lot 32." The w r i t t e n c o n t r a c t contained i n paragraph 18, language t h a t t h e McCartys ". . . acknow- ledge t h a t they have examined and inspected t h e property and a r e f u l l y f a m i l i a r and acquainted therewith and t h a t they a r e e n t e r i n g i n t o t h i s Agreement based on t h e i r own examination and inspection, and t h a t no representations of any kind concerning t h e property have been made by t h e S e l l e r s o r anyone a c t i n g on behalf of t h e S e l l e r s . " One year a f t e r t h e execution of t h e c o n t r a c t f o r deed, t h e McCartys i n i t i a t e d l e g a l a c t i o n a g a i n s t Lincoln Green, Inc., Berryman, and Berryman's bonding company. Lincoln Green, Inc., responded by f i l i n g its t h i r d p a r t y complaint a g a i n s t t h e r e a l e s t a t e agent Berryman a s t h i r d p a r t y defendant. The McCartys a l l e g e d t h a t t h e agent Berryman had i m - properly i d e n t i f i e d t h e r e a l property which he showed t o t h e McCartys. I t was a l l e g e d t h a t Berryman showed t h e McCartys a l o t designated a s "Lot 31," and i d e n t i f i e d t h e l o t t o t h e McCartys a s being t h e "south h a l f of Lot 32." McCartys f u r t h e r claimed t h a t when they executed t h e buy-sell agreement on t h e c o n t r a c t f o r deed f o r t h e purchase of t h e south h a l f of Lot 32, they thought t h a t they w e r e i n f a c t buying t h e r e a l property which i s Lot 31. Three months before McCartys had executed t h e i r c o n t r a c t , Lot 31 had been sold. While t h e l i t i g a t i o n was pending, and before t r i a l i n t h e D i s t r i c t Court, Lincoln Green, Inc. and t h e McCartys entered i n t o an agreement f o r settlement a s t o t h e l i t i g a t i o n between them. Lincoln Green, Inc. advised Berryman in advance of the proposed settlement, but Berryman declined to participate in the settlement in any form. The consideration for the settlement was $7,169.58. Lincoln Green, Inc. incurred attorney's fees of $2,200.00 in connection with the suit against it by the McCartys. After trial between Lincoln Green, Inc. and Berryman, on the third party complaint, the District Court found that Berryman had a duty to his principal reasonably to establish the location of the parcel by geographical landmarks and that this duty existed particularly where the seller, Lincoln Green, Inc., did not have an existing relationship with the McCartysand did not participate in the showing of the parcel or the preparation of the buy-sell agreement except to the extent that Lincoln Green, Inc. prepared the documents of transf er. The District Court concluded that Berryman was negligent in his scope as a broker salesperson in his failure properly to identify the parcel owned by Lincoln Green, Inc., and by misrepresenting the parcel to the McCartys, contrary to the duty a real estate agent owes to his principal as established by the standards accepted by the profession in the State of Montana. Accordingly, judgment was entered by the District Court and this appeal followed. We will consider together the first two issues raised by Berryman. Berryman contends that Lincoln Green, Inc. may not be held responsible to the McCartys unless Berryman himself was liable to the McCartys. Thus, he contends that Lincoln Green, Inc. may recover damages paid to the McCartys only if Lincoln Green, Inc. proves that Berryman was tortious -4- and t h a t no defenses a v a i l a b l e t o Berryman could r e l i e v e t h e agent from l i a b i l i t y t o t h e McCartys. Berryman then contends t h a t t h e D i s t r i c t Court e r r e d i n finding e i t h e r t h a t he was negligent o r t h a t t h e r e was a misrepresentation of property which gave rise t o a l e g i t i m a t e claim a g a i n s t Lincoln Green, Inc. Berryman's argument on t h i s p o i n t is grounded on evidence t h a t t h e r e a l e s t a t e agent t o l d McCartys a t t h e t i m e they went o u t t h a t he wasn't s u r e of t h e exact l o c a t i o n of t h e property and t h e r e f o r e , t h e McCartys assumed "any r i s k associated" i n l o c a t i n g t h e c o r r e c t p a r c e l ; and on paragraph 18 of t h e w r i t t e n c o n t r a c t whereby t h e McCartys disclaimed any r e l i a n c e i n e n t e r i n g i n t o t h e c o n t r a c t upon anything o t h e r t h a t t h e i r own examination and inspection of t h e premises. Berryman relies on our r e c e n t case of Schulz v. Peake (1978) , Mont . , 583 P.2d 425, 35 St.Rep. 1295. I n t h a t case, t h e purchaser of a motel property sued f o r fraud- u l e n t misrepresentations i n t h e s a l e , contending they w e r e t o l d t h a t they w e r e g e t t i n g 13 a c r e s i n a d d i t i o n t o t h e motel. A year a f t e r t h e purchase, t h e buyers discovered they had only 1.3 a c r e s of land. The purchase agreement had i n it a s i m i l a r provision t o paragraph 18 i n t h i s case, t o t h e e f f e c t t h a t t h e purchasers had conducted t h e i r own examination and w e r e r e l y i n g on t h a t and n o t on any represent- a t i o n made t o them by t h e sellers o r t h e s e l l e r s ' agents. T h i s Court held t h a t because of t h e c o n t r a c t u a l provisions, a s w e l l a s t h e evidence t h a t t h e purchasers had i n f a c t inspected t h e property numerous t i m e s when t h e boundary l i n e s w e r e pointed o u t t o them, and i n none of t h e s a l e s agreements was t h e f i g u r e "13 a c r e s " included, t h e motel and t h e p a r c e l containing 1.3 a c r e s were properly described i n t h e t r a n s f e r agreements. Schulz, supra, i s d i s t i n g u i s h a b l e from t h e f a c t s i n t h e case a t bar. Although t h e McCartys contracted t h a t they had i n f a c t inspected t h e premises and r e l i e d on t h e i r own inspection, it i s a l s o t r u e t h a t they had inspected t h e wrong property and t h a t t h e inspection of t h e wrong property was brought about through t h e f a i l u r e of t h e real e s t a t e agent properly t o i d e n t i f y t h e property t h a t he was showing t o t h e prospective buyers. Thus, i n t h i s case, Lincoln Green, Inc. incurred a l i a b i l i t y t o t h e McCartys because a seller i s bound by m i s - r e p r e s e n t a t i o n s made by a r e a l e s t a t e broker o r agent a s t o t h e l o c a t i o n of t h e property, o r a s t o t h e p a r t i c u l a r l o t o r t r a c t which was f o r s a l e . Blanke v. Miller (1954), 364 Mo. 797, 268 S.W.2d 809; Williams v. Ritcheson (Tex.Civ.App. 1948), 212 S.W.2d 813. Under s e c t i o n 28-10-602, MCA, a p r i n c i p a l is responsible t o t h i r d persons f o r t h e negligence of h i s agent i n t h e t r a n s a c t i o n of t h e business of t h e agency, including wrong- f u l acts committed by such agent i n and a s a p a r t of t h e t r a n s a c t i o n of such business. Neither assumption of r i s k nor contributory negligence w e r e pleaded a s a f f i r m a t i v e defenses. This Court w i l l n o t pass on i s s u e s n o t r a i s e d i n t h e D i s t r i c t Court. Chadwick v. Gilberson ( N o . 80-7, Decided O c t . 8, 1980, 37 St-Rep. 1723) Berryman next contends t h a t t h e Court improperly concluded t h a t he was negligent because t h e r e w a s no evidence before t h e D i s t r i c t Court as t o t h e standard of c a r e o r d i n a r i l y exercised by r e a l e s t a t e agents i n t h e community i n l i k e circumstances. I n its conclusions of l a w , t h e ~ i s t r i c t Court found t h a t Berryman was negligent i n f a i l i n g properly -6- t o i d e n t i f y t h e p a r c e l t o be s o l d , thereby misrepresenting t h e p a r c e l s of t h e purchasers "contrary t o t h e duty a r e a l e s t a t e agent owes t o h i s p r i n c i p a l as e s t a b l i s h e d by t h e standards accepted by t h e profession i n t h e S t a t e of Montana." The language i n t h e conclusions respecting t h e standards accepted by t h e profession i n Montana appears t o be g r a t u i t o u s , because no evidence of t h e standards w a s presented a t t h e t r i a l . W e f i n d no e r r o r on t h i s point. A n agent i s responsible t o t h i r d p a r t i e s a s a p r i n c i p a l , when h i s a c t s a r e wrongful i n t h e i r nature. Section 28-10-702(3), MCA. N o standard could be countenanced by t h e r e a l estate brokers'profession, accepting as a reasonable standard of c a r e t h e showing of t h e wrong property on behalf of a prospective seller t o a prospective purchaser. The l a s t i s s u e r a i s e d by Berryman r e l a t e s t o t h e damages awarded by t h e District Court. When t h e McCartys discovered t h a t a f t e r making improvements upon t h e property which they thought was t h e i r s , t h a t t h e agreements described t h e wrong property, they d i d n o t seek r e s c i s s i o n , b u t i n s t e a d sued f o r damages. They sought not only a c t u a l damages, but p u n i t i v e damages i n a sum i n excess of $107,660.00. The c o u r t found t h a t Lincoln Green, Inc. and t h e McCartys entered i n t o an arms-length negotiation whereby Lincoln Green, Inc., c r e d i t e d t h e unpaid balance on an e x i s t i n g c o n t r a c t f o r deed f o r t h e wrong p a r c e l by t h e sum of $2,500.00; i n t e r e s t on t h e unpaid balance was forgiven i n t h e sum of $2,108.08; and it obtained an access s u i t a b l e t o McCartys f o r t h e o t h e r property i n t h e sum of $2,500.00. There was a l s o t h e c o s t of $61.50 f o r a c u r r e n t t i t l e commitment and insurance policy, and Lincoln Green, Inc. incurred l e g a l f e e s i n t h e amount of $2,200.00 i n t h e defense of t h e o r i g i n a l l i t i g a t i o n . -7- Berryman claims that in cases of a negligent misrepre- sentation, the measure of damages should be the difference in the value of the property received in the transaction and his purchase price or other value given for it, and the pecuniary loss suffered otherwise as a consequence of the misrepresentation, citing Restatement of Torts 5 552(b). Here, Berryman claims there is no evidence offered to substantiate that there was a difference in value between the property actually received by the McCartys and what the McCartys actually paid for it. The District Court decided the issues in favor of Lincoln Green, Inc., in this case, on tort liability of the agent. The measure of damages for tort liability is con- trolled by section 27-1-317, MCA. It provides: "For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not." It is the intent and purpose of our statutes, except for liquidated damages, agreed damages, or exemplary damages, that damages be compensatory and are properly awarded when they serve to compensate the plaintiff for the detriment proximately caused by the defendant. Lovely v . Burroughs Corporation (1974), 165 Mont. 209, 527 P.2d 557, appeal after remand, 169 Mont. 454, 548 P.2d 610. The damages awarded by the District Court here meet the statutory test of section 27-1-317, MCA, and were properly awarded. Affirmed. , * ----, Justice We Concur: Chief Justice Justices Mr. Justice Gene B. Daly dissenting: I dissent. The right to indemnity is an equitable principal based on the general theory that one compelled to pay for damages caused by another should be able to seek recovery from that party. May Trucking Co. v . International Harvester (1975) , 97 Idaho 319, 543 P. 2d 1159. A suit for indemnification is generally allowed where, "the parties are not in pari delicto, and an injury results from the act of one party whose negligence is the primary, active and proximate cause of the injury, and another party, who is not negligent or whose negligence is remote, passive and secondary, is nevertheless exposed to liability by acts of the first party. . ." Great Northern Railway Co. v. United States (D. Mont. 1960), 187 F.Supp. 690, 693. In its suit for idemnification respondent alleged, by way of a third party complaint, that appellant, due to his negligent misrepresentation to the McCartys, breached the standard of care established by the real estate profession. Respondent then went on to state that, as a result of this breach, appellant should indemnify respondent, as a third party plaintiff, for any sums due and owing the McCartys. In response to the third party complaint, appellant entered, by way of an answer, a specific denial to respondent's averments of negligence. Appellant, however, asserted no affirmative defenses or counterclaims to the suit. To establish a right of indemnity, as set forth in its third party complaint, respondent must prove that appellant, due to his misstatements as to the property shown the McCartys, breached a standard of care established by the real estate profession and, thus, is liable for any sums due and owing resulting from the negligent misrepresentation. Respondent has failed in this regard; thus, it was not entitled to prevail on the suit for indemnification. In support of his argument that respondent failed to establish any negligent behavior, appellant asserts that the testimony and evidence offered at trial reveals that the McCartys place no reliance upon the alleged misrepresenta- tion as required to establish a cause of action for negli- gent or fraudulent misrepresentation. As a basis for this contention, appellant makes note of the contract for deed between respondent and McCartys. Included in this contract is the following provision: "18. Buyers acknowledge that they have examined and inspected the property and are fully familiar and acquainted therewith and that they are enter- ing into this agreement based upon their own examination and inspection, and t h a t no repre- s e n t a t i o n s of any kind concerning t h e property have been made by the S e l l e r s o r anyone a c t i n g on behalf of the S e l l e r s . " A s i m i l a r c o n t r a c t provision was i n t e r p r e t e d i n Schulz v. Peake (1978), Mont. , 583 P.2d 425, 35 St.Rep. 1295. The Court i n Schulz held t h a t t h e language i n such a c o n t r a c t clause i s c l e a r and unambiguous and, thus, is t o be enforced a s made by the p a r t i e s . The Court then went on t o a f f i r m t h e lower c o u r t ' s decision t h a t t h e "complete i n v e s t i - gation" clause i n s u l a t e s t h e sellers from an a l l e g a t i o n of fraudulent representation. Upon examining t h e c o n t r a c t provision and giving it e f f e c t a s made by the p a r t i e s , it i s c l e a r and apparent t h a t t h e McCartys denied any r e l i a n c e on any representations of the s e l l e r o r the s e l l e r ' s agent and entered i n t o the agree- ment based on t h e i r own examination and inspection. With t h i s being t h e case, t h e e s s e n t i a l element of r e l i a n c e upon t h e seller's representations, needed t o support a cause of a c t i o n f o r fraud o r negligent misrepresentation, i s eliminated. Respondent contends t h a t even i f it i s determined t h a t it was n o t l i a b l e t o McCartys f o r representations made by t o appellant, it i s s t i l l entitled/indemnification f o r t h e c o s t s of t h e settlement. I n support of t h i s contention, respondent c i t e s Great Northern Railway =, supra. I n Great Northern Railway Co. t h e p l a i n t i f f (indem- n i t e e ) had been sued by a business i n v i t e e who was injured when struck by a mail pouch thrown by a United S t a t e s Govern- ment p o s t a l t r a n s p o r t a t i o n clerk. The p l a i n t i f f s e t t l e d t h e a c t i o n with t h e injured p a r t y and then i n i t i a t e d s u i t a g a i n s t t h e United S t a t e s Government f o r indemnity. One of t h e i s s u e s on appeal i n t h a t case was whether t h e p l a i n t i f f i s precluded from recovery f o r a payment, v o l u n t a r i l y made, i n view of a finding t h a t p l a i n t i f f ' s agent was n o t negligent. The c o u r t , i n deciding t h e i s s u e , s t a t e d t h a t s i n c e t h e defendant had refused t h e tender of defense of t h e o r i g i n a l a c t i o n , p l a i n t i f f was j u s t i f i e d i n e f f e c t i n g a f a i r and reasonable settlement without r e s i s t i n g t h e l i t i g a t i o n i n s t i t u t e d by t h e i n j u r e d p a r t y t o t h e p o i n t of judgment. Great Northern Railway Co., 187 F.Supp. a t 697. Appellant contends t h a t the p r e s e n t c a s e involves a d i f f e r e n t f a c t u a l s i t u a t i o n and, thus, i s d i s t i n g u i s h a b l e from Great Northern Railway Co. F i r s t of a l l , the c o u r t placed a g r e a t d e a l of r e l i a n c e on t h e f a c t t h a t t h e defen- d a n t (indemnitor) was given n o t i c e of t h e o r i g i n a l s u i t y e t refused t o tender a defense. In t h e p r e s e n t case, respon- d e n t merely sued f o r indemnification by means of a t h i r d p a r t y complaint with no demand being made, o r one refused, t h a t a p p e l l a n t tender defense of t h e a c t i o n brought by t h e McCartys. Furthermore, i n Great Northern Railway Co., it was only t h e p l a i n t i f f ' s agent who was found n o t negligent; t h e defendant's a g e n t ' s l i a b i l i t y f o r t h e i n j u r i e s s t i l l remained, thus, s t i l l e n t i t l i n g t h e i n j u r e d t h i r d p a r t y t o a recovery. Here, however, n o t only was respondent's l i a b i l i t y eliminated by t h e c o n t r a c t provision entered i n t o by McCartys, b u t a p p e l l a n t ' s l i a b i l i t y t o t h e p a r t i e s a s w e l l . Respondent a l s o c i t e s Washington Water Power Co. v. Morgan E l e c t r i c Co. (1968), 152 Mont. 126, 448 P.2d 683, i n support of i t s argument t h a t it i s e n t i t l e d t o indemnifi- c a t i o n i ' n . s p i t e of l i a b i l i t y . The Court i n t h i s case found t h a t : "Where, as here, the indemnitor and his insurer, after notice, refuse to defend the indemnitee; breach the indemnity agreement; refuse to par- ticipate in settlement negotiations or defend af ter demand; know the amount of the settlement and make no objections; the indemnitee is en- titled to judgment as a matter of law in the amount of any settlement paid by it in good faith absent proof that the settlement is un- reasonable." 448 P.2d at 689. Appellant again would have this Court distinguish the case at issue in that here there is no indemnity agreement; no demand or refusal to tender a defense; and no prior notice of the settlement negotiations or allowance to parti- cipate therein. Furthermore, the defendant indemnitor in Washington Water Power Co. was specifically found to be negligent, which, based upon the lack of reliance on appel- lant's representations, is not the case in this instance. In essence, appellant argues that prior to a proper indemnification for settlement costs the following elements must be present: (1) notice and refusal to tender a defense; (2) justification for seeking a settlement, with the appel- lant contending that said justification arises only when the indemnitee is exposed to actual liability (as opposed to mere potential liability) ; and (3) that the settlement be fair and reasonable. Appellant then argues that since respondent failed to give notice and demand a tender of defense and respondent failed to establish exposure to actual liability, it is not entitled to an indemnification for its settlement costs. As to the requirement of notice, although there is authority to the contrary, as a general rule the liability of an indemnitor does not depend on the reception of a notice that indemnitee is subject to a suit for injuries caused by the indemnitor's negligent acts. 42 C.J.S. Indemnity, §26 at 604. Even if notice would be a require- ment, filing of a third party complaint by indemnitee seek- ing recovery from indemnitor, such as occurred here, would be sufficient. As to justification of the settlement, the authorities are divided on whether actual liability is required or whether mere potential liability will suffice. See Block- ston v. United States (D. Md. 1968), 278 F.Supp. 576, 586. The majority of the courts hold, however, that when an indemnitee seeks reimbursement from his indemnitar for a payment made by him in discharge of a claim, he is not bound to submit a suit to judgment before paying the claim; but, - if the indemnitee settles prior to judgment, as a condition -- - - - of recovery from his indemnitor, he is under the necessity - -- -- of proving he was actually liable for the amount paid. - -- -- United Boatbuilders, Inc. v . Tempo Products Co. (1969), 1 Wash.App. 177, 459 P.2d 958; Nelson v. Sponberg (1957), 51 Wash.2d 371, 318 P.2d 951; see also Ke-Wash Co. v. Stauffer Chemical Co. (Iowa 1970), 177 N.W.2d 5; Williams v . Johnston (1968)r 92 Idaho '292, 442 P.2d 178; 42 C.J.S. Indemnity, S25 at 603-604. The contract entered into between the parties, if it is given effect by the Court, contains a clause that has been held to insulate the seller and the seller's agent from a claim of fraudulent or negligent misrepresentations. With this being the case, respondent is unable to prove actual liability on the part of appellant. Thus, respondent is not entitled to an accrument of the right to indemnification for settlement costs. I acknowledge that the lower court determined that appellant was liable for negligent misrepresentation. I also note, however, that the trial court ignored appellant's argument that the contract for deed refutes the charges brought by eliminating an essential factor required to establish the cause of action. It is a well-settled rule of law that the finder of fact will not be reversed on appeal unless the evidence clearly preponderates against the findings. Berdine v. Sanders County (1974), 164 Mont. 206, 520 P.2d 650. The findings in this case, however, are not supported by the evidence presented. Thus, the decision of the District Court should be reversed. I n substance, I j o i n i n t