Title: FLAHERTY v HENSLEY

State: montana

Issuer: Montana Supreme Court

Document:

No. 12818 I N T H E SUPREME COURT O F T H E STATE O F M O N T A N A LOUIS FLAHERTY, d / b / a FLAHERTY AGENCY, and BRYON L. FLAHERTY, Individually , P l a i n t i f f s and Appellants, RILEY H. HENSLEY and L A R O B. HENSLEY, husband and wife, Defendants and Respondents. Appeal from: D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , Honorable Truman G. Bradford, Judge presiding. Counsel of Record: For Appellants : John McCarvel argued, Great F a l l s , Montana Hartelius and Lewin, Great F a l l s , Montana For Respondent: E. W. G i a n o t t i argued, Great F a l l s , Montana - Submitted: November 18, 1974 Decided : ~ E c 8 3 F i l e d : ?EC 2 3 l a d ' M r . Chief J u s t i c e James T. Harrison delivered t h e Opinion of t h e Court. This is an appeal from t h e judgment of t h e d i s t r i c t court, Cascade County, holding t h a t defendants Riley H. Hensley and Laro B. Hensley d i d not owe a real e s t a t e broker's commission of $4,200 t o p l a i n t i f f Louis Flaherty. The f a c t s a r e : Sometime p r i o r t o March 1 2 , 1973, t h e Hensleys leased c e r t a i n ranch property i n Teton County, Montana t o one Stewart Schwartz. This l e a s e was i n writing and contained a provision granting Schwartz an option t o purchase t h e property during t h e term a t a prearranged price. O n March 1 2 , 1973, t h e Hensleys entered i n t o a real e s t a t e broker's employment c o n t r a c t with Flaherty. The c o n t r a c t provided f o r an "open" l i s t i n g . A t t h i s t i m e Flaherty and h i s agents were aware of t h e l e a s e between t h e Hensleys and Schwartz, although it i s sharply disputed whether they knew of Schwartzls option. Subsequently Flaherty negotiated with a prospective buyer, and on March 30, 1973, t h e p a r t i e s entered i n t o a "Stevens-Ness" form r e c e i p t and agreement t o sell and purchase. This instrument s p e c i f i c a l l y c a l l e d a t t e n t i o n t o Schwartzls option. However, before t h e s a l e was consummated, Schwartz e l e c t e d t o exercise h i s option and purchased t h e property. Whether Flaherty had notice, a c t u a l o r constructive, of Schwartzls option is t h e c r u c i a l element i n t h i s case. Flaherty contends t h e Hensleys never informed him of it u n t i l t h e agreement t o sell and purchase was executed, and t h e r e f o r e they breached t h e broker's employment c o n t r a c t and acted i n bad f a i t h . The d i s t r i c t c o u r t , however, r e j e c t e d t h i s contention by finding Flaherty himself negligent f o r not a s c e r t a i n i n g the existence of t h e option earlier, as s e t f o r t h i n finding of f a c t 111: "That a t t h e t i m e of entering i n t o t h e r e a l e s t a t e brokers employment c o n t r a c t , p l a i n t i f f ' s agents were aware of t h e w r i t t e n l e a s e between defendant and Schwartz. That p l a i n t i f f and h i s agents were negligent i n not determining t h e option provisions contained i n s a i d w r i t t e n l e a s e before o f f e r i n g t h e s a i d property f o r s a l e . " W e think t h i s finding is supported by s u b s t a n t i a l c r e d i b l e evi- dence and ought t o stand. Donald Blumfield, president of t h e Great F a l l s Board of Realtors, was c a l l e d a s a witness by t h e Hensleys and t e s t i f i e d a s follows: "Q. Would you consider a s e l l e r t h a t came t o your o f f i c e and l i s t e d property f o r s a l e with you and had not t o l d you t h e r e was outstanding options, t h a t t h a t person would be a c t i n g i n bad f a i t h . A. (no response) "Q. Wouldn't you f e e l he would have an o b l i - gation t o make a f u l l disclosure t o any options outstanding? A. I think so. O f course I t h i n k t h i s would--if a l i s t i n g was properly taken you would know t h i s a t t h e t i m e . "Q. H o w would you know i t ? A. You would ask. "Q. I f he d i d n ' t t e l l you? A. P a r t i c u l a r l y on farm property you would ask. Number one, I would want t o see t h e lease. I f t h e r e was a l e a s e on t h e property I would want t o see t h a t so I would know when possession could be a f f e c t e d by t h e purchaser, what p r i c e t h e summer fallow might have t o be paid t o t h e l e s s o r . "Q. That wouldn't a f f e c t t h e s a l e , would i t ? A. Oh, yes, it would d e f i n i t e l y . "Q. I t wouldn't preclude t h e s a l e , but not a l l l e a s e s contain an option t o purchase, do they? A. No, they d o n ' t . But I would s t i l l want t o see t h e lease. " (Emphasis added) . In other words, a reasonable, prudent man i n F l a h e r t y ' s shoes would have obtained a copy of t h e l e a s e immediately and d i s - covered a l l t h e f a c t s . This i s t h e prevailing majority r u l e i n such cases. See B e s t v Kelly, 22 Wash.2d 257, 155 P.2d 7 9 4 , 801, 156 ALR 1387, perhaps t h e leading case on t h e subject and frequently c i t e d with approval. i n other j u r i s d i c t i o n s . The Court i n B e s t - placed an a f f i r m a t i v e duty upon t h e broker: " * * * the burden of inquiring i n t o t h e t e r m s [of t h e lease] r e s t e d upon [ t h e broker], and even a cursory examination of the l e a s e would have disclosed t h e paragraph r e f e r r e d t o . " (Bracketed words added) . W e a r e unable t o d i s t i n g u i s h t h e i n s t a n t case from Best. H o w can Flaherty--a licensed r e a l e s t a t e broker f o r 21 years-- now be heard t o disclaim knowledge of Schwartz's option when he admits he knew of t h e l e a s e from t h e s t a r t ? Applying the r u l e i n B e s t resolves t h e controversy, f o r - t h e d i s p o s i t i v e i s s u e i s whether Flaherty i s e n t i t l e d t o a com- mission where he had p r i o r notice of t h e d e f e c t which subsequent- l y prevented consummation of t h e s a l e . The Annotation a t 156 ALR 1398, 1399 provides t h e answer: " I f a broker, a t t h e time he makes a contract with t h e owner f o r t h e s a l e of t h e l a t t e r ' s property, knows of d e f e c t s i n h i s employer's t i t l e o r knows f a c t s s u f f i c i e n t t o put a reason- ably prudent person on inquiry, which, i f followed with reasonable diligence, would bring t o him such knowledge, he is not e n t i t l e d t o recover commissions where t h e s a l e f a i l s because of such defects. The Hensleys a r e e n t i t l e d t o a t t o r n e y fees by v i r t u e of section 93-8601.1, R.C.M. 1947, which provides: "Contractual r i g h t t o attorney f e e s t o be reciprocal. Whenever by v i r t u e of t h e provisions of any c o n t r a c t o r obligation i n t h e nature of a c o n t r a c t , made and entered i n t o a t any time a f t e r t h e e f f e c t i v e d a t e of t h i s a c t , one p a r t y t o such contract o r o b l i g a t i o n has an express r i g h t t o recover attorney f e e s from any o t h e r p a r t y t o t h e contract o r obligation i n t h e event t h e p a r t y having t h a t r i g h t s h a l l bring an a c t i o n upon t h e c o n t r a c t o r obligation, then i n any a c t i o n on such c o n t r a c t o r obligation a l l p a r t i e s t o t h e c o n t r a c t o r o b l i g a t i o n s h a l l be deemed t o have t h e same r i g h t t o recover attorney f e e s , and t h e prevailing p a r t y i n any such a c t i o n , whether by v i r t u e of t h e express contractual r i g h t , o r by v i r t u e of t h i s a c t , s h a l l be e n t i t l e d t o re- cover h i s reasonable attorney f e e s from t h e losing p a r t y o r p a r t i e s . " The judgment of t h e d i s t r i c t c o u r t on the i s s u e of t h e Hensleyts l i a b i l i t y t o Flaherty is affirmed; t h e cause i s remanded with d i r e c t i o n s t o f i x attorney f e e s i n accordance with t h e s t a t u t e . ................................ Chief J u s t i c e - 4 - We concur: