Title: KRONE v MCCANN

State: montana

Issuer: Montana Supreme Court

Document:

No. 81-67 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 MAXINE KRONE, et al., Plaintiffs and Respondents, REX T. McCANN, DOROTHY G. McCANN and SUPERIOR HOMES, INC., Defendant and Appellant. Appeal from: District Court of the Fourteenth Judicial District, In and for the County of Musselshell Honorable LeRoy L. McKinnon, Judge presiding. Counsel of Record: For Appellant: Hibbs, Sweeney, Colberg, Jensen & Koessler, Billings, Montana William Jensen argued, Billings, Montana For Respondents: Craig Buehler argued, Montana Legal Services, Lewistown, Montana Submitted: October 27, 1981 Decided: Filed: MAR 1 0 19821 Y' 1 e Clerk Lflr. J u s t i c e Gene B. Ualy d e l i v e r e d t h e Opinion of t h e Court. T h i s is an a p p e a l of an a d v e r s e judgment i n a l a n d c o n t r a c t a c t i o n e n t e r e d by t h e c o u r t s i t t i n g w i t h o u t a j u r y i n t h e F o u r t e e n t h J u d i c i a l D i s t r i c t , County of M u s s e l s h e l l . Respondents brought t h i s a c t i o n t o reform a c o n t r a c t f o r deed between t h e respondents and a p p e l l a n t s , S u p e r i o r Homes, I n c . , i t s p r e s i d e n t , Rex T. McCann, and its s e c r e - t a r y , Dorothy G. McCann. A p p e l l a n t s cross-claimed f o r damages a r i s i n g o u t of t h e l o s s of use of a c a b i n l o c a t e d on t h e land s o l d and f o r exemplary damages f o r t h e r e s p o n d e n t s ' dogs c h a s i n g c a t t l e owned by t h e McCanns. T r i a l was had by t h e c o u r t s i t t i n g without a j u r y from J a n u a r y 22 t o January 24, 1980. The c o u r t e n t e r e d judgment f o r t h e respondents, holding t h a t o v e r r e a c h i n g by Hex IrlcCann amounteu t o f r a u d u l e n t p r a c t i c e s , and t h e c o u r t reformed t h e c o n t r a c t f o r deed. The D i s t r i c t Court a l s o h e l d t h a t Rex NcCann must reimburse t h e respondents f o r monies g i v e n t o a t h i r d person who was recommended by McCann t o b u i l d a house f o r t h e respondents. L a s t l y , t h e D i s t r i c t Court g r a n t e d Montana Legal S e r v i c e s , who r e p r e s e n t e d t h e r e s p o n d e n t s , $10,000 a s r e a s o n a b l e a t t o r n e y f e e s . 'The NcCanns and S u p e r i o r Homes, I n c . , a p p e a l . Maxine Krone is a widow w i t h two sons i n t h e i r e a r l y t w e n t i e s . The McCanns a r e r e a l t o r s doing b u s i n e s s through S u p e r i o r Homes, I n c . , a c o r p o r a t i o n owned by t h e McCann family. Rex McCann is t h e p r e s i d e n t and major s t o c k h o l d e r o f S u p e r i o r Homes and D o r o t h y McCann i s t h e s e c r e t a r y - t r e a s u r e r . Bryan Krone f i r s t c o n t a c t e d t h e McCanns through an ad i n t h ~ newspaper. On December 31, 1975, Rex FlcCann showed t h e Krones s e v e r a l p a r c e l s of land i n t h e B u l l Mountains. I n mid-June of 1976 Rex McCann a g a i n showed t h e Krones p a r c e l s of l a n d i n t h e Bull Mountains. The testimony of t h e p a r t i e s d i f f e r e d c o n s i d e r a b l y a s t o what Rex McCann t o l d t h e Krones a b o u t a s i x t y - a c r e p a r c e l t h e y were i n t e r e s t e d i n buying. The D i s t r i c t Court found t h a t Rex McCann r e p r e s e n t e d t h a t t h e s i x t y - a c r e p a r c e l had a c a b i n which he wanted t o use f o r about t h r e e months u n t i l he f i x e d up a n o t h e r c a b i n on a d j a c e n t p r o p e r t y . The D i s t r i c t Court a l s o found t h a t Rex McCann r e p r e s e n t e d t h a t t h e p r o p e r t y had t h r e e good w e l l s , and t h a t he would have it surveyed o r f u r n i s h papers showing t h e boundaries. No t e s t s were ever made of t h e w a t e r s from t h e wells. The D i s t r i c t Court found, however, " t h a t it appears t h a t none of t h e w e l l s f u r n i s h water s u i t a b l e f o r human consumption a l t h o u g h t h e one with t h e pump is s a t i s f a c t o r y f o r s t o c k water." Maxine Krone t e s t i f i e d t h a t s h e would n o t h a v e purchased t h e p r o p e r t y i f t h e c a b i n was n o t included i n t h e t r a n s a c t i o n . R e x McCann t e s t i f i e d t h a t he never intended t o s e l l t h e cabin w i t h t h e land s i n c e he used it a s a head- q u a r t e r s f o r h i s r e a l e s t a t e b u s i n e s s . Maxine Krone d e c i d e d t o p u r c h a s e t h e s i x t y - a c r e p a r c e l and t o l d PlcCann t h a t she wanted t o b u i l d a house f o r h e r s e l f and her sons on t h e p r o p e r t y . McCann recommended a man named Neal Warnes t o b u i l d her house. The kcCanns and Neal Warnes had a meeting with Maxine Krone a t her house i n B i l l i n g s i n mid-June, 1976. D i s c u s s i o n s ensued concerning how much money Maxine Krone should t r y t o y e t a s a downpay- ment on her house i n o r d e r t o make t h e downpayment f o r t h e Bull Mountains p r o p e r t y and t o pay Warnes f o r beginning work on a new house. Maxine Krone t e s t i t i e d t h a t a t t h e mid-June meeting s h e was unsure of whether t o c o n t r a c t w i t h Warnes t o b u i l d her house. She s t a t e d t h a t it was o n l y upon Rex McCann's g u a r a n t e e of Warnes' r e l i a b i l i t y t h a t she agreed t o h i r e Warnes. The D i s t r i c t Court found t h a t Rex McCann had a s s u r e d t h e Krones t h a t "he had a man, Mr. hrarnes" and t h a t Maxine Krone r e l i e d upon t h i s a s s u r a n c e when s h e h i r e d Warnes and advanced money t o him. Maxine Krone s o l d her home i n B i l l i n g s and on J u l y 15 signed a buy-sell agreement f o r t h e B u l l Mountains land t h a t c o n t a i n e d t h e c a b i n and t h r e e wells. The buy-sell agreement c o n t a i n s a paragraph i n which s e l l e r , McCann, made s e v e r a l r e s e r v a t i o n s . The p e r t i n e n t s e c t i o n f o l l o w s : " S u b j e c t t o r e s e r v a t i o n s , e a s e m e n t s f o r e g r e s s and i n g r e s s and u t i l i t i e s of r e c o r d , and r e s e r v i n g t o t h e s e l l e r an easement f o r i n g r e s s and e g r e s s and u t i l i t i e s t o t h e e x i s t i n g c a b i n and over and a c r o s s t o reach o t h e r p r o p e r t i e s . The s e l l e r r e t a i n s t h e g r a s s and g r a z i n g p r i v i l e a g e s [ s i c ] u n t i l 1 [ s i c ] t h e land is fenced and used f o r a g r i - c u l t u r a l or g r a z i n g purposes. By i n s t a l l i n g a water tank near t h e boundy [ s i c ] , i n s t a l l - ing a motor on t h e e x i s t i n g pump and paying f o r t h e e l e c t r i c i t y , t h e s e l l e r may use t h e water from s a i d w e l l . " Maxine Krone c l a i m s t h a t t h e above paragraph was n o t c o n t a i n e d i n t h e buy-sell agreement when s h e signed it on J u l y 15, 1976. Rex McCann signed t h e buy-sell on J u l y 15 a s s a l e s r e p r e s e n t a t i v e f o r S u p e r i o r Homes, I n c . O n J u l y 2 0 , Dorothy McCann and Rex McCann signed a s s e l l e r s . The D i s t r i c t Court made no f i n d i n g s of f a c t a s t o t h e buy-sell agreement. A f t e r s i g n i n g t h e buy-sell agreement, Maxine Krone, using U-Haul t r a i l e r s , moved her belongings t o t h e B u l l Mountains p r o p e r t y . She d i s c o v e r e d t h a t Neal War n e s had done nothing toward t h e c o n s t r u c t i o n of her house e x c e p t d i g a h o l e f o r t h e f o u n d a t i o n . Needing a p l a c e t o s t o r e her belongings, she asked Warnes t o b u i l d her a barn, which he iiid w i t h t h e use of salvaged lumber. The s t o r a g e shed or barn was t h e e x t e n t of t h e work done by Neal Warnes f o r Maxine Krone i n t h e summer of 1976. Maxine Krone paid Warnes and a person he employed a t o t a l of $3,456.15. T h e r e a f t e r , Krone went t o t h e McCanns a s k i n g them t o g e t Warnes t o work on ner house. A f t e r t h e s e d i s c u s s i o n s w i t h McCanns, Warnes would c a l l Krone s e v e r a l t i m e s t o a s s u r e her he would g e t busy b u i l d i n g her house. Warnes d i s a p p e a r e d i n September 1976, and Maxine Krone brought s u i t a g a i n s t him. He d e f a u l t e d b u t Maxine Krone was never reimbursed f o r t h e money s h e p a i d t o him s i n c e Warnes was judgment p r o o f . The D i s t r i c t Court found t h a t Rex McCann had an i n t e r e s t i n Krone's agreement with Warnes because t h e i r agreement made it f e a s i b l e f o r t h e Krones t o purchase t h e l a n d . Because of McCannls a s s u r a n c e s and t h e b e n e f i t he r e c e i v e d from t h e agreement between Warnes and Maxine Krone, and b e c a u s e Krone r e l i e d on McCannls a s s u r a n c e s , t h e D i s t r i c t Court found Rex McCann p e r s o n a l l y l i a b l e f o r t h e $3,450 Krone had p a i d t o Warnes. A c o n t r a c t f o r deed was s i g n e d by t h e Krones and t h e PlcCanns on August 2 1 , 1976, f o r t h e s a l e of t h e B u l l Mountains land. The Krones m a i n t a i n t h a t t h e s i g n i n g took p l a c e a t t h e c a b i n , t h a t t h e y read a c o n t r a c t f o r deed and s i g n e d it. Then, Rex McCann gave them two more c o n t r a c t s which t h e y s i g n e d , t h i n k i n g t h e y were c o p i e s of t h e f i r s t c o n t r a c t t h e y r e a d . 'The Krones a l s o c l a i m t n a t t n e y d i d n o t r e c e i v e a copy of t h e c o n t r a c t u n t i l September 2 4 , 1976. The Krones s a y t h a t t h e y d i d n o t look a t t h e c o n t r a c t i n September because t h e y thought it was t h e one t h e y had a l r e a d y r e a d . The McCanns c l a i m t h a t t h e s i g n i n g took p l a c e a t t h e i r r e a l t y o f f i c e i n B i l l . i n g s , i n t h e presence of t h e n o t a r y p u b l i c whose name is on t h e c o n t r a c t . The McCanns a l s o c l a i m t h a t a copy of t h e c o n t r a c t was g i v e n t o t h e Krones a t t h a t t i m e . The D i s t r i c t Court concluded t h a t t h e proof was i n s u f f i c i e n t t o draw any c o n c l u s i o n s a s t o p l a c e or circum- s t a n c e s surrounding t h e s i g n i n g of t h e c o n t r a c t . The Krones s t a y e d i n t h e c a b i n on t h e B u l l Mountains l a n d u n t i l t h e f i r s t p a r t of November when t h e y purchased a mobile home. They d i d n o t use t h e w e l l s f o r d r i n k i n g water s i n c e it appeared t h a t t h e water was u n f i t f o r human consumption. The w e l l s were never t e s t e d f o r p u r i t y . I n t h e s p r i n g of 1977, c a t t l e were brought t o t h e s i x t y - a c r e t r a c t by a man named Al.exander who s a i d he had bought t h e g r a z i n g r i g h t s t o t h e land from Rex McCann. The Krones t r i e d t o p r e v e n t Alexander from g r a z i n g h i s c a t t l e on t h e land and chased t h e cows away from t h e i r mobile home. A t t h i s time t h e y c o n t a c t e d Rex McCann about t h e g r a z i n g r i g h t , and t h e y were t o l d t o read t h e i r c o n t r a c t . When t h e y read t h e i r c o n t r a c t , t h e y b e l i e v e d it was n o t t h e agreement t h e y had s i g n e d . The D i s t r i c t Court found t h a t t h e y then d i s c o v e r e d f o r t h e f i r s t time t h a t t h e s e l l e r had r e s e r v e d a l l g r a z i n g until. t h e p r o p e r t y was fenced, re- served use of t h e o n l y w e l l i n o p e r a t i o n f o r s t o c k w a t e r , and ownership of t h e c a b i n . The Krones m a i n t a i n t h a t t h e y d i d n o t know of t h e s e r e s e r v a t i o n s u n t i l t h e s p r i n g of 1977 and b e l i e v e d t h a t t h e y had purchased t h e c a b i n w i t h t h e l a n d . The D i s t r i c t C o u r t c o n c l u d e d t h a t Rex McCann's a c t i o n s were " o v e r r e a c h i n g " and amounted t o f r a u d u l e n t p r a c t i c e s . The c o n t r a c t f o r deed was reformed by t h e c o u r t t o exclude a l l r e s e r v a t i o n s made by t h e 1YcCanns. The I4cCanns were o r d e r e d t o p r o v i d e u s e a b l e water from one of t h e w e l l s , and t h e i r use of t h e c a b i n was l i m i t e d t o t h r e e months. Rex McCann was r e q u i r e d t o reimburse Maxine Krone f o r t h e monies advanced t o Narnes. The respondents were r e q u i r e d t o pay f o r t h e c o s t of a survey t o e s t a b l i s h boundaries. F i n a l l y , t h e McCanns and S u p e r i o r Homes were r e q u i r e d t o pay a r e a s o n a b l e a t t o r n e y f e e t o Montana Legal S e r v i c e s of $10,000. While a p p e l l a n t s r a i s e s i x i s s u e s f o r review, a d i s c u s s i o n of t h e two main i s s u e s r e s o l v e s t h i s c a s e . The main i s s u e is simply whether t h e r e is s u b s t a n t i a l c r e d i b l e evidence t o s u p p o r t t h e D i s t r i c t C o u r t ' s f i n d i n g s t h a t Rex McCann made c e r t a i n r e p r e s e n t a t i o n s and such r e p r e s e n t a t i o n s amounted t o f r a u d . The second i s s u e is whether t h e McCanns should be l i a b l e f o r t h e monies Maxine Krone p a i d t o Neal Warnes. S i n c e t h e r e is n o t s u b s t a n t i a l evidence t o s u p p o r t a f i n d i n g of f r a u d and s i n c e t h e r e is nothing on t h e r e c o r d t o show a p a r t n e r s h i p by e s t o p p e l between Rex McCann and Neal Warnes, t h e judgment of t h e D i s t r i c t Court must be r e v e r s e d . The a p p e l l a n t s c o n f r o n t t h e f r a u d i s s u e by a r g u i n g t h a t t h e admission of par01 evidence by t h e D i s t r i c t Court was error since fraud was not successfully proven. The respondents maintain that it is the prerogative of the fact- finder to decide the existence of the misrepresentations and fraud, and that such findings must be upheld on appeal since they are supported by substantial evidence. The appellants' objection to the use of parol evi- dence could be resolved rather easily by looking to the language of section 28-2-905(2), MCA, which provides that there can be no parol evidence of the terms of an agreement between the parties except: "to establish illegality or fraud." Here, the oral representations of Rex McCann were used to establish overreaching or fraud. There remains, however, the basic question: Was there substantial evidence to support the finding of fraud? We have emphasized in the past that it is the province of the District Court to determine whether fraud has been perpetrated on an innocent purchaser. "The Distr ict Court is in the best position to weigh the factors involved, assess the credibility of witnesses . . . I ' Dolson Co. v. Imperial Cattle Co. (1981), - Mont. - , 624 P.2d 993, 996, 38 St.Rep. 306, 310. We have also noted the difficulty in showing fraud, since it cannot be proven easily by direct evidence. See Montana Nat'l Bank v. Michels (1981), Mont . , 631 P.2d 1260, 38 St.Rep. 334. We have further emphasized that the evidence pre- sented must support findings by the District Court of the following nine requisite elements of fraud: "1. A representation; "2. Falsity of the representation; "3. Materiality of the representation; "4. Speaker's knowledge of tne falsity of the representation or ignorance of its truth; "5. Speaker's intent it should be relied upon; "6. The hearer's ignorance of the falsity of the representation; "7. The hearer's reliance on the representa- tion; "8. The hearer's right to rely on the repre- sentation; and "9. Consequent and proximate injury caused by the reliance on the representation." Van Ettinger v. Pappin (1978), 180 Mont. 1, 588 P.2d 988, 994, 35 St.Rep. 1956, 1961, and cases cited therein. Here, giving all legal presumptions to the District Court, we fail to find substantial credible evidence of these elements present in the record. Clearly we could not reverse the District Court on this issue unless there is a clear preponderance of the evidence against the court's findings. Spencer v. Robertson (1968), 151 Mont. 507, 445 P.2d 48; Smitn v. Krutar (1969), 153 Mont. 325, 457 P.2d 459. Here, the preponderance of the evidence does not support a finding of fraud. In Cowan v. Westland Realty Company (1973), 162 Mont. 379, 512 P.2d 714, after looking carefully at the record, we found that indeed a certain representation was not made by the defendant. In Cowan we noted that fraud can never be presumed, but must be proved by a preponderance of the evidence. "Good faith will always be presumed and mere suspicion of fraud is not sufficient." Cowan, 512 P.2d at 716, citing Reilly v. Maw (1965), 146 Mont. 145, 405 P.2d Here, McCann was found to have made the represonta- tions that the property had three good wells, a cabin, and t h a t he would e i t h e r nave t h e p r o p e r t y surveyed or f u r n i s h p a p e r s showing t h e boundaries . The w e l l s h a v e n e v e r b e e n t e s t e d . -- - T h e r e is no showing on t h e r e c o r d t h a t McCannls r e p r e s e n t a t i o n t h a t t h e w e l l s were "good" was f a l s e . I t was o n l y shown t h a t j u s t one w e l l had a pump and t h e o t h e r s d i d n o t . Maxine Krone t e s t i f i e d t h a t s h e thought t h e c a b i n was t r a n s f e r r e d t o them with t h e purchase of t h e p r o p e r t y . She would have b e l i e v e d she owned t h e c a b i n a s of August 2 6 , 1976, when she p u r p o r t e d l y read a c o n t r a c t f o r deed d i f f e r - e n t from t h e one i n evidence. However, on October 6 , 1976, i n a v e r i f i e d complaint, Maxine Krone s t a t e d : " . . . t h e p l a i n t i f f [Maxine Krone] moved her belongings from t h e home being r e n t e d by her i n B i l l i n g s , Montana, and r e s i d e d i n a c a b i n owned by t h e s a i d Rex McCann; t h a t s a i d c a b i n was n o t l a r g e enough t o f u l l y accommodate a l l of t h e b e l o n g i n g s owned by t h e p l a i n t i f f s . " Maxine Krone, on October 6 , 1976, s i x weeks a f t e r t h e c l o s i n g on t h e p r o p e r t y , swore t h a t t h e c a b i n was Rex McCann's--this was n o t d i s c u s s e d by t h e D i s t r i c t C o u r t . However, t h i s goes d i r e c t l y t o t h e q u e s t i o n of t h e p u r p o r t e d r e p r e s e n t a t i o n by Rex McCann d u r i n g c o n t r a c t n e g o t i a t i o n s . L a s t l y , Hex McCann was found t o have r e p r e s e n t e d t h a t he would f u r n i s h p a p e r s showing t h e boundaries of t h e l a n d . 'The respondents do n o t c l a i m t h a t t h i s was t h e r e p r e s e n t a - t i o n made; r a t h e r , respondents c l a i m t h a t McCann r e p r e s e n t e d t h a t t h e f e n c e s were t h e boundaries. I n Van E t t i n g e r v. Pappin, s u p r a , we s t a t e d : "'When it a p p e a r s t h a t a p a r t y , who c l a i m s t o have been deceived t o h i s p r e j u d i c e , h a s i n v e s t i q a t e d f o r himself o r t h a t t h e means were a t hand t o a s c e r t a i n t h e t r u t h . . . of any r e p r e s e n t a t i o n s made t o him, h i s r e l i a n c e upon s u c h r e p r e s e n t a t i o n s made t o him, however f a l s e t h e y may have been, a f f o r d s no ground of complaint. . . I II 588 P.2d a t 994, q u o t i n g Lee v, Stockmen's N a t ' l Bank ( 1 9 2 2 ) ; 63 Mont. 262, 284, 207 P. W, 630. ( C i t a - t i o n s o m i t t e d . ) L 2.3 Here, t h e Krones could have e a s i l y t e s t e d t h e w e l l s , or seen t h a t t h e r e were n o t pumps on two of t h e t h r e e w e l l s . Also, t h e Krones could have d i s c o v e r e d t h e a c t u a l boundaries of t h e i r land by looking t o a 1972 survey, or t a l k i n g t o a n e i g h b o r , Mrs. O l l i s , who knew t h e a c t u a l boundary was n o t t h e f e n c e l i n e . The r e c o r d , t h e r e f o r e , d o e s n o t s u p p o r t t h e c o n c l u s i o n by t h e D i s t r i c t Court t h a t McCann's r e p r e s e n t a - t i o n s amounted t o f r a u d . The second i s s u e of whether Rex McCann should be h e l d l i a b l e f o r t h e monies Maxine Krone p a i d t o Neal Warnes can be d i s c u s s e d summarily s i n c e t h e r e is n o t h i n g i n t h e r e c o r d t o show a p a r t n e r s h i p by e s t o p p e l between Rex McCann and Neal Warnes. The o n l y f a c t s i n t h e r e c o r d which a r e claimed t o g i v e r i s e t o a p a r t n e r s h i p by e s t o p p e l were: (1) McCann s a i d he knew of a person who could b u i l d a house f o r Krones; ( 2 ) McCann introduced Maxine Krone t o Warnes; ( 3 ) McCann and Warnes d i s c u s s e d a t Krone's house how much downpayment s h e should t r y t o g e t f o r s e l l i n g her house i n o r d e r t o make t h e downpayment f o r t h e land and pay Warnes h i s i n i t i a l money; ( 4 ) McCann s a i d Warnes was r e l i a b l e ; and ( 5 ) Warnes was going t o b u i l d a greenhouse f o r t h e McCanns. These f a c t s a r e i n s u f f i c i e n t t o e s t a b l i s h a p a r t n e r - s h i p by e s t o p p e l under s e c t i o n 35-10-368, MCA. There was n e i t h e r t h e r e p r e s e n t a t i o n t h a t Warnes worked " a s a p a r t n e r i n an e x i s t i n g p a r t n e r s h i p " w i t h McCann, nor can t h a t i n f e r e n c e be drawn from t h e r e c o r d . A s t h i s d i s c u s s i o n i n d i c a t e s , w e a r e unable t o f i n d s u b s t a n t i a l c r e d i b l e evidence of f r a u d or any evidence of t h e kind t o render t h e McCanns l i a b l e i n t h e d e f a u l t e d t r a n s a c t i o n between t h e Krones and Neal Warnes. The judgment of t h e D i s t r i c t Court is r e v e r s e d , and t h e cause is remanded t o t h e D i s t r i c t Court t o e s t a b l i s h W e concur: A Chief J u s t i c e ! 2 & + J u s t i c e s Justice John C. Sheehy, dissenting: I dissent. I would affirm the award of damages except that I would not hold the defendants chargeable with the Waarnes charges in connection with home construction, and I would reduce the attorney fees by one-half. Justice