Title: HAYES v HARTELIUS

State: montana

Issuer: Montana Supreme Court

Document:

NO. 84-370 IN THE SUPREME COURT OF THE STATE OF MONTANA 1985 JOHN HAYES and COLLEEN HAYES, Plaintiffs and Appellants, -VS- CHAIJNING HARTELIUS, Defendant and Respondent. APPEAL FROM: District Court of the Eighth Judicial District, In and for the County of Cascade, The Honorable John 14. McCarvel, Judge presiding. COUNSEL OF RECORD: For Appellants: Charles M. Cruikshank, 111, Great Falls, Montana For Respondent: Gregory 0 . Morgan, Bozeman, Montana Submitted on ~riefs: Jan. 24, 1985 Decided: April 9 , 1985 J ,,*, , Filed: . . 7 . . + J Clerk M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion o f t h e Court. P l a i n t i f f appeals from a judgment o f t h e D i s t r i c t Court, Eiqhth J u d i c i a l District, Cascade County. I n t h a t judgment t h e c o u r t found a s follows: (1) P l a i n t i f f s breached a c o n t r a c t with defendant f o r t h e purchase o f r e a l p r o p e r t y and consequently may n o t recover p a r t i a l payment made pursuant t o t h e c o n t r a c t . ( 2 ) P l a i n t i f f s cannot recover money from defendant on t h e b a s i s o f u n j u s t enrichment o r on t h e b a s i s t h a t H a r t e l i u s holds money f o r p l a i n t i f f s a s a c o n s t r u c t i v e t r u s t e e . ( 3 ) Section 70-25-101 ( 4 ) , MCA of t h e Montana S e c u r i t y Deposit A c t does n o t apply t o t h i s case. P l a i n t i f f s and defendant w e r e good f r i e n d s . Channing H a r t e l i u s represented John and Colleen Hayes, a s t h e i r a t t o r n e y on s e v e r a l occasions, and s o c i a l i z e d with John Hayes on numerous o t h e r occasions. I n 1978 H a r t e l i u s had h i s house up f o r s a l e and p l a i n t i f f s expressed an i n t e r e s t i n buying it. The p r i c e o f t h e house was $59,900. H a r t e l i u s suggested an arrangement whereby p l a i n t i f f s would pay $10,000 down, assume a t r u s t deed balance of $48,310.08 due F i r s t Federal Savings and Loan of Great F a l l s , and s i g n a promissory n o t e f o r $1,589.92. P l a . i n t i f f s agreed t o t h i s arrangement b u t because o f t h e i r poor c r e d i t r a t i n g , F i r s t Federal r e f u s e d t o allow them t o assume t h e loan. Despite t h i s o b s t a c l e p l a i n t i f f s remained eager t o buy t h e house and defendant was w i l l i n g t o f i n d a way t o sell it t o them. P l a i n t i f f s assured defendant t h a t w i t h i n one o r two y e a r s t h e y would be a b l e t o secure financing t o assume t h e balance on t h e loan t o F i r s t Federal. Consequently, t h e p a r t i e s worked o u t an agreement whereby defendant would remain l i a b l e on t h e t r u s t i n d e n t u r e and make t h e payments t h e r e o n , w h i l e p l a i n t i f f s would make equal payments t o defendant a s t h e t r u s t indenture payments became due. To memorialize t h i s arrangement t h e defendant prepared a l e a s e and assignment agreement. The agreement was f o r two y e a r s s u b j e c t t o renewal a t t h e mutual agreement of t h e p a r t i e s , and provided t h a t once a year p l a i n t i f f s would seek approval t o assume t h e loan o r would seek refinancing a t another i n s t i t u t i o n . P l a i n t i f f s refused t o s i g n t h e agreement because they had expected a c o n t r a c t f o r deed, which defendant could not provide because of an a c c e l e r a t i o n c l a u s e i n t h e t r u s t indenture with F i r s t Federal. But d e s p i t e t h e r e being nothing i n w r i t i n g between t h e p a r t i e s , p l a i n t i f f s moved i n t o t h e house on August 15, 1978 and on August 27, 1978 paid defendant $10,000 down and agreed t o pay on t h e promissory note. Thereafter, p l a i n t i f f s made monthly payments of $475 t o defendant, who applied t h e payments t o t h e t r u s t indenture. I n a d d i t i o n , p l a i n t i f f s paid on t h e $1,589.92 note i n $50.89 monthly i n s t a l l m e n t s . From August 1978 t o A p r i l 1982 p l a i n t i f f s occupied t h e house, insured it i n t h e i r name, claimed t h e i n t e r e s t on t h e bank loan a s a t a x deduction, and operated a beauty shop on t h e premises. I n October and November of 1979, t h e monthly payments were returned by t h e bank f o r non-sufficient funds (NSF) . Defendant s e n t a l e t t e r t o p l a i n t i f f s imploring them t o make t h e payments good and on t i m e . P l a i n t i f f s d i d so f o r s e v e r a l months t h e r e a f t e r , b u t from May through August of 1980, they paid only $250. O n August 4 , 1980, defendant s e n t p l a i n t i f f s a n o t i c e of d e f a u l t on both t h e note and t h e l e a s e agreement. P l a i n t i f f s acknowledged t h e debt and made payment of $2,166.56, which defendant accepted. Shortly t h e r e a f t e r however, checks f o r September and November 1980 and February and March 1981, w e r e returned NSF. N o payment was made i n December o f 1980 o r January of 1981. O n June 29, 1981, t h e bank gave n o t i c e o f d e f a u l t t o defendant on t h e May and June payments and a s s e s s e d l a t e charges o f $253.87. A f t e r t h e August, 1981 payment was n o t made, defendant n o t i f i e d p l a i n t i f f s t h a t he was $2,229 p a s t due on t h e d e b t and t h e bank had a c c e l e r a t e d . P l a i n t i f f s were given t h e o p p o r t u n i t y t o continue occupancy on a r e n t a l agreement o f $550 p e r month i f payment was brought c u r r e n t . They w e r e advised t h a t they would have t o pay o r move by October 15, 1981. O n October 26, 1981, p l a i n t i f f s s e n t a p a r t i a l payment and requested a l e a s e a.greement. O n November 11-, 1981, t h e y began t o make r e n t a l payments o f $550 a month. A l e a s e agreement was s e n t t o p l a i n t i f f s b u t was never r e t u r n e d signed. I n February, 1982, p l a i n t i f f s missed t h e i r r e n t payment and w e r e s e n t a n o t i c e o f t e r m i n a t i o n o f tenancy. I n A p r i l o f 1982 p l a i n t i f f s vacated l e a v i n g t h e house i n c o n s i d e r a b l e d i s r e p a i r . To t h e end, even a f t e r p l a i n t i f f s h i r e d an a t t o r n e y i n contemplation o f t h i s l a w s u i t , defendant remained w i l l i n g t o s e l l t h e house i f p l a i n t i f f s could s e c u r e f i n a n c i n g t o talce him o u t o f t h e l o a n t o F i r s t F e d e r a l . P l a i n t i f f s could n o t s e c u r e f i n a n c i n g , however, and brought t h i s a c t i o n t o recover t h e i r down payment. The following i s s u e s a r e presented: (1) Whether t h e p l a i n t i f f s e n t e r e d i n t o a c o n t r a c t w i t h defendant f o r t h e s a l e o f d e f e n d a n t ' s house? (2) Whether t h e s t a t u t e o f f r a u d s p r e v e n t s t h a t c o n t r a c t , i f i f e x i s t s , from being enforced? ( 3 ) Whether an u n s a t i s f i e d c o n d i t i o n precedent prevented a l e a s e agreement from becoming a s a l e s agreement? ( 4 ) Whether t h e Montana R e s i d e n t i a l Landlord and Tenant Act o f 1977, s e c t i o n s 70-24-101, e t s e q . , o r 70-25-101, e t seq., relating to the residential tenants' securtiy deposits, apply to this case? This case demonstrates once again that it is not wise for friends to engage in a business deal. If the deal goes sour, so, often, does the friendship. Hartelius had a house to sell and plaintiffs wanted to buy it. The problem was that plaintiffs had such a bad credit rating that they could neither assume Hartelius' loan nor otherwise get financing. Consequently, Hartelius made plaintiffs an offer that amounted, if accepted, to an indirect assumption of the loan. Hartelius would continue to pay the bank if plaintiffs would pay Hartelius. This was an offer only a friend would make, since Hartelius remained liable on the loan if plaintiffs should fail to pay. The plaintiffs fairly jumped to accept the offer. They moved into the house, made a downpayment of $10,000, and agreed to pay on a promissory note, all before any part of the agreement was reduced to writing. When Hartel-ius drew up a lease and assignment, plaintiffs refused to sign it because it was not a contract for deed. They continued to occupy the house, however, and made good and timely payments in accordance with the agreement for over a year. There is no question but that the parties made a contract for the purchase of the Hartelius home. They made an oral agreement which was further consented to by conduct. According to section 28-2-501 (I), MCA, consent is communicated "by some act or omission of the party contracting by which he intends to communicate it or which necessarily tends to such communication." Further, section 28-2-503(l), MCA, states that if a party performs the conditions of a proposal or accepts the consideration offered with a proposal, then that party has accepted the proposal. In addition, section 28-2-503(2), MCA states that a person who voluntarily accepts the benefits of a transaction, consents to the obligations arising from it, assuming he knows, or ought to know, the facts pertaining to the transaction. Without doubt, plaintiffs communicated their consent to defendant's proposal by moving into the house, making a downpayment, and thereafter making monthly payments. They performed the conditions of the proposal by making the payments, and they accepted the consideration offered by moving into the house. Since they accepted the benefits of the transaction, they also consented to its obligations. It needs to be emphasized that plaintiffs did not consent, by their conduct, to the terms of the lease agreement drawn up by Hartelius. The evidence shows that plaintiffs refused to sign the lease agreement and made that refusal plain to the defendant. Further, the evidence shows that defendant knew that the plaintiffs thought that the oral agreement of August 1978, pursuant to which plaintiffs moved into the house and paid $10,000 down, was a contract for deed. By their refusal to sign, plaintiffs made clear that they would accept a contract for deed, but not a lease. By accepting payments, by not objecting to the plaintiffs' continued occupation of the house, and by not attempting to revoke or rescind when plaintiffs refused to sign the lease, defendant Hartelius consented to the plaintiffs' interpretation of the oral agreement: that it was a contract for deed. Section 28-2-102, MCA states the four elements essential to the existence of a contract. In this case there is no question that there are identifiable parties capable of c o n t r a c t i n g , t h a t t h e r e i s a lawful o b j e c t and t h a t t h e r e i s consideration. The only question is whether o r not t h e r e was consent. The f a c t s c l e a r l y i n d i c a t e an o f f e r , an acceptance, and mutual consent t o t h e s a l e of defendant's house. W e hold, t h e r e f o r e , t h a t t h e p a r t i e s entered i n t o a c o n t r a c t f o r t h e s a l e of r e a l property. P l a i n t i f f s argue t h a t , even i f t h e r e were a v a l i d c o n t r a c t between t h e p a r t i e s , it i s unenforceable due t o t h e s t a t u t e of frauds. The s t a t u t e of frauds i s c o d i f i e d i n s e c t i o n s 28-2-903 and 70-20-101, MCA. Section 28-2-903(1) (d) s t a t e s t h a t "an agreement f o r t h e l e a s i n g f o r a longer period than 1 year o r f o r t h e s a l e of r e a l property" i s i n v a l i d i f not i n w r i t i n g and subscribed t o by t h e p a r t y t o be charged. Section 70-20-101, MCA s t a t e s t h a t r e a l property cannot be t r a n s f e r r e d unless t h e r e i s a w r i t i n g signed by t h e t r a n s f e r o r . Taken alone, t h e s e s t a t u t e s would render t h i s c o n t r a c t unenforcea.ble s i n c e no w r i t i n g was signed by e i t h e r party. There a r e two reasons, however, why t h e s t a t u t e of frauds does not apply t o t h i s case. F i r s t , t h e p a r t i e s admitted t h e e x i s t e n c e of a c o n t r a c t . This Court has taken t h e p o s i t i o n on s e v e r a l occasions t h a t it w i l l not allow t h e s t a t u t e of frauds, t h e o b j e c t of which i s t o prevent fraud, t o be used t o accomplish fraudulent purposes. Ryckman v. Wildwood, Inc. (1982), 197 Mont. 154, 641 P.2d 467; Hillstrom v. Gosnay (Mont. 1980), 614 P.2d 466, 37 St.Rep. 1087; Farmers Elevator Co. of Reserve v. Anderson (1976), 170 Mont. 175, 552 P.2d 63. I n t h i s case, it would be a fraud on t h e defendant t o allow p l a i n t i f f s t o admit t o t h e c o n t r a c t , and then allow them t o avoid i t s o b l i g a t i o n s by a s s e r t i n g t h e s t a t u t e of frauds. W e r e f u s e t o countenance such a r e s u l t . Second, defendant Hartelius has performed on the contract to his detriment. The principle of part performance as an exception to the statute of frauds is recognized in sections 70-20-102 and 30-11.-111, MCA. The same principle has long been recognized by this Court. See Dyksterhouse v. Doornbos (1977), 172 Mont. 461, 564 P.2d 1293; Epletviet v. Solberg (1946), 119 Mont. 45, 169 P.2d 722; Cobban v. Hecklew (1902), 27 Mont. 245, 70 P. 805. In Epletviet we held that where one party to an oral contract has performed in reliance thereon, it would be a fraud to allow the other party to set up the statute of frauds as a justification for repudiating the contract. " [Elquity will regard [such a] case as being removed from the operation of the statute and will enforce the contract by decreeing specific performance of it, or by granting other appropriate relief." Epletviet, 119 Mont. at 57, 169 P.2d at 729. In the present case, defendant withheld his property from the market for four years, reli-nquished possession of it for four years, and permitted plaintiffs to claim a tax deduction on the interest payments to First Federal. He did these things to his detriment and in reliance on the contract. After such part performance, to all-ow the statute of frauds to defeat the contract would itself be fraud on Hartelius. We will not permit the statute of frauds to be so used. The plaintiffs contend that an unsatisfied condition precedent in the lease agreement prevents the lease agreement from becoming a sales agreement. As previously noted, we find no 1-ease agreement in this case. Defendant wrote up a lease and assignment agreement but plaintiffs refused to sign it because it was not a contract for deed. Defendant did not insist that plaintiffs sign the lease agreement. Instead, he acquiesced to the oral purchase agreement. Since there was not consent to the lease agreement, its terms do not determine the existence of the sales contract. The sales contract was formed without relation to the proposed lease agreement. Therefore, whether or not there is an unsatisfied condition precedent in that document is of no relevance to the disposition of this case. Additionally, since we find that the parties did not enter into a lease, neither the Montana Landlord Tenant Act, nor Montana statutes relating to tenants' security deposits, apply to this case. In conclusion, we find that plaintiffs and defendant entered into an oral contract for the sale of real property. The statute of frauds does not render this contract invalid. Plaintiffs breached the contract by not making timely and sufficient payments. Defendant did not obtain any money from plaintiffs by wrongful means. As the District Court i?oted, defendant demonstrated the soul of patience and practiced considerable restraint. Therefore, there is no equitable basis by which plaintiffs can recover partial payment made under the contract. In addition, it is the rule in Montana that a purchaser, under an oral agreement for the sale of real estate, cannot recover partial payments on the purchase price if the seller remains willing and able to carry through with the agreement. Perkins v . Allnut (1913), 47 Mont. 13, 130 P.2d 1 . Defendant has at all times been willing and able to perform on the contract. He should not be forced to disgorge the payments made thereon. We affirm the judgment of the District Court. We concur: