Title: SCHULZ v PEAKE

State: montana

Issuer: Montana Supreme Court

Document:

No. 14212 IN THE S U P - COUIiT OF THE STATE OF MONTANA 1978 ARNOLD H . SCHULZ MINNIE B. SCHULZ , husband and wife, and FXlBDV L . SCHULZ, Plaintiffs and Appellants, FRED J. PEAKE and ANNA MAE PEAKE, husband and wife, Defendants and Respondents. +peal frm: District Court of the Sixth Judicial District, Honorable Jack Shanstram, Judge presiding. Counsel of Record: For Appellants: Landoe, Gary and Planalp, Bozes~n, bbntana For Respondents: - , S k i r a T f i r \ l u r p n y , e ~ , ?&mtam Suhnitted on briefs: August 2, 1978 Decided: PUG 2 1378 --f M r . J u s t i c e John Conway Harrison delivered t h e Opinion of t h e Court. This i s an appeal i n a damage a c t i o n f o r alleged fraudulent representations i n t h e s a l e of a motel. I n a nonjury case, t h e c o u r t found f o r defendants and p l a i n t i f f s appeal. P l a i n t i f f s - a p p e l l a n t s a r e Arnold and Minnie Schulz, husband and wife, and t h e i r son Robert Schulz. The family had operated a drive-in r e s t a u r a n t i n Elkton, Oregon, before coming t o Gardiner, Montana. While l i v i n g a t Elkton, they formed a friendship with Luis Dohnalek who l a t e r moved t o Gardiner. Through Dohnalek they became i n t e r e s t e d i n and l a t e r bought t h e Northgate Motel i n Gardiner. While l i v i n g i n Gardiner, Dohnalek became acquainted with defendants-respondents, Fred and Annamae Peake. H e learned they were i n t e r e s t e d i n s e l l i n g t h e motel and Annamae Peake offered him $500 f i n d e r s f e e i f he could f i n d a buyer. A t t h a t t i m e , he wrote appellants t o f i n d o u t i f they were i n t e r e s t e d . They contacted Dohnalek and respon- dents, who confirmed t h e i r i n t e r e s t i n s e l l i n g . Minnie Schulz t e s t i f i e d t h a t Peake t o l d them t h a t i n addition t o t h e motel, t h e r e w e r e 13 a c r e s a t t h e s i t e . That f i g u r e w a s denied by t h e Peakes. I n May, 1973, Arnold and Robert Schulz went t o Gardiner, stayed a t t h e motel and spent t h r e e days inspecting t h e motel and t h e surrounding premises. They walked the grounds and inspected most, i f not a l l , of t h e motel u n i t s . During t h i s v i s i t , they were informed by respondents t h a t c e r t a i n of t h e u n i t s w e r e not habitable during t h e winter while o t h e r s could be occupied a l l year. On May 10, 1973, appel- l a n t s agreed t o purchase t h e motel and made a $1,000 e a r n e s t payment. Appellant Robert Schulz prepared t h e memorandum of t h e agreement which was signed by Robert and Arnold, and Arnold a l s o signed h i s w i f e ' s name. They then returned t o Oregon t o t r y and sell t h e i r business a t Elkton. O n J u l y 13, 1973, Dohnalek wrote t o appellants con- cerning c e r t a i n d e t a i l s about t h e motel. A t t h a t t i m e he t o l d them i f they d i d n o t decide t o buy t h e motel t h a t he, Dohnalek, was i n t e r e s t e d i n buying it. H e a l s o t o l d appel- l a n t s t h a t respondents would refund t h e e a r n e s t money pay- ment i f they d i d not purchase t h e motel. Either i n t h e J u l y 13 l e t t e r o r an earlier l e t t e r , Dohnalek attached a sketch of t h e motel area. Early i n September, 1973, Arnold and Robert returned t o Gardiner, moved i n t o t h e motel and spent some 20 days t h e r e p r i o r t o executing a c o n t r a c t f o r t h e purchase of t h e motel. During t h i s period they again inspected t h e u n i t s , talked t o l o c a l people and generally educated themselves about t h e business and i t s problems. Three days before t h e c o n t r a c t w a s signed Minnie Schulz came from Oregon t o look a t t h e property. The p a r t i e s signed a c o n t r a c t f o r deed which accurately described t h e property purchased and s a i d con- t r a c t was placed i n escrow. Approximately a year a f t e r t h e purchase, appellants had a controversy with a neighbor over a boundary l i n e . They had t h e i r area surveyed and it r e s u l t e d with t h e f a c t they owned approximately 1.3 acres of useable land instead of 13 acres. They then brought t h i s a c t i o n f o r damages a l l e g i n g four s p e c i f i c misrepresentations. The D i s t r i c t Court found no misrepresentations and no fraud. Four i s s u e s a r e presented on appeal: 1. W a s Luis Dohnalek an agent f o r Fred Peake? 2. Did t h e c o u r t e r r i n its f i n d i n g s and conclusions holding t h a t t h e "Complete I n v e s t i g a t i o n " c l a u s e i n s u l a t e s sellers from fraud? 3. Did t h e c o u r t err i n i t s f a i l u r e t o f i n d t h a t s e l - l e r s misrepresented t h e acreage t o t h e buyers? 4. Did t h e c o u r t e r r i n f a i l i n g t o f i n d sellers m i s - represented t h e heating system? Appellants argue t h e c o u r t r u l e d Dohnalek was n o t an agent because of t h e f r i e n d s h i p between Dohnalek and t h e p a r t i e s . The record does n o t s u s t a i n t h a t argument. The c o u r t found t h a t p r i o r t o May, 1973, Minnie Schulz had contacted Dohnalek asking him t o l o c a t e a business i n Gardiner. Dohnalek f i r s t suggested they purchase a grocery s t o r e i n Gardiner, b u t a p p e l l a n t s w e r e n o t i n t e r e s t e d . I t was l a t e r he learned respondents were i n t e r e s t e d i n s e l l i n g and wrote t o a p p e l l a n t s about t h e motel. To have found Dohnalek an agent of respondents, t h e t r i a l c o u r t would have t o have found he came within t h e following two s t a t u t e s and our c a s e s i n t e r p r e t i n g those s t a t u t e s . Section 2-101, R.C.M. 1947, d e f i n e s agency: "Agency defined. A n agent i s one who r e p r e s e n t s another, c a l l e d t h e p r i n c i p a l , i n d e a l i n g s with t h i r d persons. such-representation is c a l l e d agency. " Section 2-103, R.C.M. 1947, d i s t i n g u i s h e s between s p e c i a l and general agents: "Agents, general o r s p e c i a l . A n agent f o r a p a r t i c u l a r a c t o r t r a n s a c t i o n i s c a l l e d a spe- c i a l agent. A l l o t h e r a r e general agents." A person dealing with a s p e c i a l agent is bound a t h i s p e r i l t o a s c e r t a i n t h e scope of t h e a g e n t ' s a u t h o r i t y . Moore v. Skyles (1905), 33 Mont. 135, 138, 82 P. 799; Schaeffer v. Mutual Benefit L i f e I n s . Co. (1909), 38 Mont. 459, 465, 100 P. 225; Northwestern Electric Equipment Co. v. Leighton e t a l . (1923), 66 Mont. 529, 213 P. 1094; Benema v. Union Central L i f e Ins. Co. (1933), 94 Mont. 138, 147, 21 P.2d 69. Sections 2-104, 2-105, and 2-106, R.C.M. 1947, d e f i n e a c t u a l and o s t e n s i b l e agencies: "2-104. Agency, a c t u a l o r o s t e n s i b l e . A n agency i s e i t h e r a c t u a l or o s t e n s i b l e . "2-105. Actual agency. A n agency i s a c t u a l when t h e agent i s r e a l l y employed by t h e p r i n c i p a l . "2-106. Ostensible agency. A n agency i s o s t e n s i b l e when t h e p r i n c i p a l i n t e n t i o n a l l y , o r by want of ordinary c a r e , causes a t h i r d person t o b e l i e v e another t o be h i s agent who is n o t r e a l l y employed by him." It i s s i g n i f i c a n t t o note t h e r e i s n o t one shred of testimony, nor any a l l e g a t i o n t h a t Luis Dohnalek o r Fred Peake ever represented t h a t Dohnalek was Peake's agent. A l l negotiations were admittedly conducted between a p p e l l a n t s and respondents. Dohnalek was merely t h e conduit through which information was transmitted t o a p p e l l a n t s . Some of t h i s information was provided by Peake, o t h e r information gathered by Dohnalek himself, and some by t h i r d p a r t i e s through Dohnalek. But a l l of such information was gathered by Dohnalek a s a f r i e n d of a p p e l l a n t s , a t t h e i r s p e c i a l i n s t a n c e and request, and n o t a s t h e agent of Peake. I n t h e o l d c a s e of H a r t t v. Jahn e t a l . (1921), 59 Mont. 173, 181, 196 P. 153, t h e Court, i n i n t e r p r e t i n g s e c t i o n 2-216, R.C.M. 1947 (then Section 5424 Revised Codes 1907), said: " * * * I t must be remembered t h a t t h e s u b j e c t m a t t e r i s r e a l e s t a t e , and t h a t any c o n t r a c t conferring upon an agent o r broker t h e a u t h o r i t y t o make a s a l e o r t o c o n t r a c t t o make sale of real e s t a t e must be i n writing. * * * A s t h e s t a t u t e s now read, any binding a u t h o r i t y given t o an agent t o c o n t r a c t t o sell land must be i n w r i t i n g . Inasmuch a s t h e a u t h o r i t y of t h e agent must be i n writing, he can have no more a u t h o r i t y than i s vested i n him by t h e writing." The burden of proof was on appellants t o prove t h e i r claim. Certainly, i f t h e agency r e l a t i o n s h i p i s contended t o be m a t e r i a l , appellants f a i l e d t o s u s t a i n t h e burden of proof i n e s t a b l i s h i n g an agency. See Federal Land Bank of Spokane v. Myhre (1940), 1 1 0 Mont. 416, 1 0 1 P.2d 1017. Under t h e law of these cases, t h e c o u r t found, a s w e must, t h a t t h e evidence w a s i n s u f f i c i e n t t o make o u t a prima f a c i e case of agency. A s t o any o r a l authorizations alleged, s e c t i o n 2-116, R.c.M. 1947, provides: "Form of authority. An o r a l authorization is s u f f i c i e n t f o r any purpose, except t h a t an a u t h o r i t y t o e n t e r i n t o a c o n t r a c t required by law t o be i n writing can only be given an instrument i n writing." This s e c t i o n was i n t e r p r e t e d ( a s Section 7939, Revised Codes of Montana 1921) i n H a r t t v. Jahn, supra, a s hereto- f o r e quoted. I n E l e c t r i c a l Products Consolidated v. E l Camp Inc. (1937), 105 Mont. 386, 395, 73 P.2d 199, t h e Court said: "The decisive question presented f o r review by t h i s court i s whether t h e p l a i n t i f f made a case upon t h e l a w and t h e f a c t s s u f f i c i e n t t o s u s t a i n t h e judgment. * * * It i s our opinion t h a t such a case was n o t made; t h i s because t h e r e was no s u f f i c i e n t showing of t h e authority of Day t o avoid t h e e f f e c t of t h e s t a t u t e re- quiring an a g e n t ' s a u t h o r i t y t o be i n writing i n conformity with s e c t i o n 7939 * * *." Nor can it be s a i d t h a t respondents r a t i f i e d any a c t i o n of Dohnalek, because Dohnalek took no action. H e never claimed t o be the agent of respondents nor d i d he ever exercise any such authority. This is a unique e f f o r t t o make respondents responsible f o r alleged misrepresentations of Dohnalek, who admittedly never claimed t o be t h e agent of respondents, nor d i d respondents ever represent t o anyone he was t h e i r agent. Neither can section 2-117, R.C.M. 1947, concerning r a t i f i c a t i o n add any s t r e n g t h t o a p p e l l a n t s ' already weak position. This s e c t i o n provides: " R a t i f i c a t i o n of a g e n t ' s a c t . A r a t i f i c a t i o n - can be made o n 5 i n t h e manner t h a t would have been necessary t o confer an o r i g i n a l a u t h o r i t y f o r the a c t r a t i f i e d , o r where an o r a l authori- zation would s u f f i c e , by accepting o r r e s t r a i n i n g t h e b e n e f i t of t h e a c t , with n o t i c e thereof." W e f i n d no e r r o r a s t o t h e f i r s t i s s u e . The second i s s u e concerns t h e c o u r t ' s finding and conclusion t h a t appellants r e l i e d on t h e i r own inspection of t h e motel and therefore respondents were not l i a b l e . Paragraph 1 4 of t h e c o n t r a c t reads: "Examination of Property. The purchasers declare they a r e purchasing s a i d property on t h e i r own examination and judgment and not through any representations t o them made by t h e sellers, o r t h e i r agents, a s t o i t s location, value, f u t u r e value, income therefrom o r as t o i t s production." I n i n t e r p r e t i n g t h e c o n t r a c t , w e look t o the s t a t u t o r y guidelines provided i n s e c t i o n 13-702, R.C.M. 1947: "Contracts--how t o be interpreted. A c o n t r a c t must be so i n t e r p r e t e d a s t o give e f f e c t t o t h e mutual i n t e n t i o n of t h e p a r t i e s as it existed a t t h e t i m e of contracting, s o f a r as t h e same i s ascertainable and lawful." H e r e , t h e language i s c l e a r and unambiguous. So being, it needs no construction and it i s t h e c o u r t ' s duty t o enforce it a s made by t h e p a r t i e s . Bullard v. Smith (1903), 28 Mont. 387, 72 P. 761; Frank e t al. v . Butte & Boulder Mining & Lumber Co. (1913), 48 Mont. 83, 135 P. 904; Thompson v. Thompson ( 1 9 7 6 ) , 1 7 0 Mont. 447, 554 P.2d 1 1 1 1 ; Danielson v. Danielson (19771, Mont . , 560 P.2d 893, 34 St-Rep. 76. Issues t h r e e and four w i l l be considered together f o r they concern t h e a l l e g a t i o n s of misrepresentation of acreage and the heating system by respondents. We must observe at this level of review of such allega- tions that the trial court has the unique position of ob- serving the witnesses, their demeanor, and then finally passing on the credibility and weight to be given such testimony. We are confined to the cold record of that testimony and recognize that it is the trial court's province to judge the credibility of the witnesses. Davidson v. Lewis (1978) , Mont. , 579 P.2d 762, 35 St.Rep. 662. Here the complaint originally set forth four alleged fraudulent misrepresentations as to: (1) Acreage; ( 2 ) Concealment of a previous highway take; (3) Lack of insulation in cabins; and (4) Possible leakage in the gas line. Two of appellants exhibits, one a description of the property showing the highway take as being 1,961 feet, and the other a letter from Dohnalek telling appellants of said take, necessitated an abandonment by appellants of this allegation. The trial testimony and the depositions of appellants fell far short of supporting the complaint, a factor no doubt in the trial judge's acceptance of the credibility of appellants' testimony. All three appellants had contradicting testimony as to the insulation of the various cabins. At trial Robert testified, contra to his deposition, that Peake told him the riverside cabins, seven in number, could not be used in cold weather, but that there were eleven units that could be used. The same contradictory type of testimony was given both by deposition and at trial about the alleged gas leakage. The local propane dealer, Harold Rediske, who had serviced the cabins for years, testified there had never been a gas l e a k a t t h e motel. Over t h e y e a r s they had t r o u b l e keeping t h e p i l o t l i g h t s c l e a n and on, a problem common t o t h a t type of h e a t i n g , b u t no major l e a k . Rediske t e s t i f i e d t h a t t h e major problem of h e a t i n g t h e u n i t s was t h a t t h e r e w a s only one tank t o s e r v i c e a l l u n i t s , c r e a t i n g a p r e s s u r e problem. his was solved by t h e i n s t a l l a t i o n of another tank a t a c o s t of o n l y $50 p e r year. On appeal a p p e l l a n t s a l l e g e a m i s r e p r e s e n t a t i o n a s t o t h e h e a t i n g system, a change from t h e o r i g i n a l complaint, b u t nowhere i n t h e i r testimony do they produce c r e d i t a b l e testimony t o s u s t a i n t h e i r a l l e g a t i o n s . The t r i a l judge q u i t e p r o p e r l y found no m i s r e p r e s e n t a t i o n s . F i n a l l y , w e consider t h e q u e s t i o n of whether o r n o t t h e r e was a m i s r e p r e s e n t a t i o n a s t o t h e acreage. Reviewing t h e f a c t s a s t o t h e acreage involved i n t h e purchase, w e cannot see t h a t t h e t r i a l judge abused h i s d i s c r e t i o n i n f i n d i n g f o r respondents on t h e evidence pro- duced f o r h i s consideration. Appellants t w i c e v i s i t e d t h e motel site b e f o r e making t h e purchase. Arnold and Robert inspected it numerous t i m e s and had t h e boundary l i n e s pointed o u t t o them. Most c e r t a i n l y they must have recognized t h a t t h e d i f f e r e n c e between 1.3 a c r e s and t h e a l l e g e d 13 a c r e s was g r e a t and should have asked q u e s t i o n s b e f o r e t h e purchase. Appellant Robert drew up t h e e a r n e s t money agreement and made no mention of t h e acreage nor d i d t h e c o n t r a c t signed by t h e p a r t i e s l a t e r i n t h e f a l l of 1973. I n a very s i m i l a r c a s e , involving t h e purchase of a motel, Waller v. Heid (1976), 170 Mont. 501, 554 ~ . 2 d 1331, t h i s Court held: "Wallers contend defendant made t h e s e m i s - r e p r e s e n t a t i o n s t o induce them t o e n t e r t h e c o n t r a c t : (1) t h a t t h e motel and residence were winterized and could be operated t h e en- t i r e year; (2) t h a t t h e highway t o Yellowstone Park would be moved and pass d i r e c t l y i n f r o n t of t h e motel; (3) t h a t t h e plumbing and wiring t o a second bathroom i n t h e residence was roughed i n and could be completed merely by hooking up t h e u t i l i t i e s ; and ( 4 ) t h a t t h e m o t e l ' s washer and dryer worked. Wallers argue they would not have entered i n t o t h e c o n t r a c t i f t h e s e misrepre- -- - s e n t a t i o n s had n o t been made. --- " I t has long been t h e r u l e i n Montana t h a t a prima f a c i e c a s e of fraud i s n o t e s t a b l i s h e d unless t h e p l a i n t i f f proves he r e l i e d on t h e t r u t h of t h e r e p r e s e n t a t i o n s made t o him. Dun- l a p v. Nelson, 165 Mont. 291, 296, 529 P.2d 1394; Clough v. Jackson, 156 Mont. 272, 279, 479 P.2d 266; Young v. Handrow, 151 Mont. 310, 315, 443 P.2d 9. The d i s t r i c t c o u r t found t h a t Wallers r e l i e d on t h e i r own i n v e s t i g a t i o n s of t h e property and those of Gary Teaney, r a t h e r than r e p r e s e n t a t i o n s made by defendant. I n Cowan v. Westland Realty Co., 162 Mont. 379, 383, 512 P.2d 714, t h i s Court s a i d : " ' T h i s Court has s t a t e d many t i m e s t h a t i t s function on appeal i s t o determine whether t h e r e i s s u b s t a n t i a l evidence t o support t h e f i n d i n g s of t h e d i s t r i c t c o u r t . This Court w i l l n o t r e v e r s e t h e f i n d i n g s of t h e t r i a l c o u r t unless t h e r e i s a c l e a r pre- ponderance of t h e evidence a g a i n s t such findings. [Citing c a s e s . ] ' " I t i s undisputed t h a t Wallers v i s i t e d W e s t Yellowstone twice and personally examined t h e motel and residence, including t h e bathroom and laundry room. Of p a r t i c u l a r s i g n i f i c a n c e i s t h e f a c t they h i r e d a n agent with s u b s t a n t i a l r e a l estate experience t o i n v e s t i g a t e t h e property and make recommendations on t h e purchase. W a l - lers paid Gary Teaney $5,000 f o r h i s s e r v i c e s . The d i s t r i c t c o u r t could properly f i n d from t h i s evidence t h a t no r e l i a n c e was placed on any rep- r e s e n t a t i o n s made by defendant. Without r e l i a n c e t h e r e was no cause of a c t i o n f o r fraud." 170 Mont. at 502-03. (Emphasis added.) A t no time during t r i a l d i d a p p e l l a n t s say they would n o t have purchased t h e motel had they been aware of t h e f a c t t h e r e was l e s s than 13 acres. They s a i d they would have thought more about it. Then, over a year l a t e r , a f t e r making t h e payments and continuing t o make payments, they brought this action for $25,000 damages--not for recission of the contract. We held in Anderson v. Applebury (1977), Mont . I - - 567 P.2d 951, 954, 34 St.Rep. 842: "It is well settled that a prima facie case of fraud is not established unless plaintiff proves the making of a material misrepresenta- tion, and reliance -- upon the truth --- of such mis- re~resentation. (Citincr cases.)" (Emphasis adhed. ) Applying our holding to this case, we note appellants had at least three opportunities to avoid this sale after inspecting it. Under these facts we cannot find the makings of material representations nor the reliance upon same by appellants. The District Court judgment is affirmed. We Concur: Cj %A$ %'P&Q* CMef Justice