Title: WORTMAN v GRIFF

State: montana

Issuer: Montana Supreme Court

Document:

No. 82-56 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 RICHARD A. WORTMAN and ANN F. WORTMAN, Plaintiffs and Appellants, GARY J. GRIFF, GERALD J. CAPLAN, CONSERVATIVE INVESTORS GROUP, and FIRST SECURITY BANK OF LIVINGSTON, Defendants and Respondents. Appeal from: District Court of the Eighteenth Judicial District, In and for the County of Gallatin Honorable W. W. Lessley, Judge presiding. Counsel of Record: For Plaintiffs: Nash & Nash, Bozeman, Montana Cordell Johnson, Helena, Montana For Defendants: Gene I . Brown, Bozeman, Montana IIuppert & Swindlehurst, ~ivingston, Montana Filed: Submitted on briefs: July 15, 1982 Decided: October 4, 1982 Clerk M r . J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e Court. T h i s a c t i o n a r o s e o u t of two agreements by t h e p l a i n t i f f s w i t h Gary G r i f f and Gerald Caplan, a s i n d i v i d u a l s , and w i t h C o n s e r v a t i v e I n v e s t o r s Group, a C a l i f o r n i a c o r p o r a t i o n , f o r two p a r c e l s of l a n d . A t r i a l was held i n t h e D i s t r i c t Court of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t . I n its d e c i s i o n , t h e D i s t r i c t Court found t h a t t h e c o n t r a c t s were s e p a r a t e and d i s t i n c t agreements , and t h a t p l a i n t i f f had defrauded t h e d e f e n d a n t cor- p o r a t i o n . From t h i s judgment, p l a i n t i f f a p p e a l s . The d e f e n d a n t s , G r i f f and Caplan, who are o f f i c e r s and t h e s o l e s h a r e h o l d e r s of t h e d e f e n d a n t c o r p o r a t i o n , c o n t a c t e d t h e p l a i n t i f f about purchasing t h e p r o p e r t y i n q u e s t i o n . They became aware of t h e p r o p e r t y through an ad i n t h e Wall S t r e e t J o u r n a l . A f t e r r e c e i p t of a brochure on t h e land and some i n i t i a l phone c o n t a c t w i t h t h e p l a i n t i f f , Richard Wortman, t h e d e f e n d a n t , flew t o Montana from C a l i f o r n i a t o look a t t h e land i n mid-November 1977. A f t e r t a k i n g a walking t o u r of t h e p r o p e r t y , which was s u b d i v i d e d i n t o ten-acre t r a c t s , and t h e n conducting nego- t i a t i o n s , it was agreed t h a t d e f e n d a n t s , G r i f f and Caplan, would purchase lots one through s i x and t h e house l o c a t e d on l o t one as i n d i v i d u a l s and t h e c o r p o r a t i o n would purchase l o t s seven through t h i r t e e n . T h i s agreement was e n t e r e d i n t o d e s p i t e t h e d e f e n d a n t s ' knowledge t h a t some of t h e lots were l o c a t e d i n a f l o o d p l a i n , because it was a l l e g e d p l a i n t i f f s a i d t h e r e were b u i l d i n g sites o u t s i d e t h e f l o o d p l a i n on e v e r y l o t . Although t h e r e is evidence t h a t t h e lots i n both p a r c e l s were n o t of e q u a l v a l u e , it was agreed to a l l o c a t e one-half of t h e t o t a l p r i c e to each c o n t r a c t . It was a l s o agreed i n b o t h c o n t r a c t s t h a t t h e p u r c h a s e r was to pay t h e t a x e s on t h e l a n d . T h i s was n o t done and p l a i n t i f f had to pay t h e t a x e s to p r e v e n t a t a x l i e n from being imposed upon t h e l a n d . However, an a t t e m p t was made to reimburse t h e p l a i n t i f f f o r s a i d t a x e s b u t he r e f u s e d t h e check. I t should a l s o be noted t h a t d e s p i t e t h e nego- t i a t i o n s , n e i t h e r c o n t r a c t r e f e r s to t h e o t h e r . The c o r p o r a t e d e f e n d a n t stopped making its semi-annual payments, as r e q u i r e d by t h e c o n t r a c t i n March 1981. The i n d i v i - d u a l d e f e n d a n t s a t t e m p t e d to make t h e i r payment on lots one t h r o u g h s i x , which was r e f u s e d by t h e p l a i n t i f f . The p l a i n t i f f ' s contend t h a t t h e c o n t r a c t s are not s e p a r a t e b u t c o n s t i t u t e one agreement, and t h e r e f o r e t h e d e f e n d a n t s are i n d e f a u l t on t h e whole and t h e i r r i g h t s i n a l l t h e p r o p e r t y should be t e r m i n a t e d . Defendants on t h e o t h e r hand answered by contending t h a t t h e t w o c o n t r a c t s a r e s e p a r a t e and d i s t i n c t . The c o r p o r a t e d e f e n d a n t also counterclaimed a s k i n g f o r r e s c i s s i o n because p l a i n t i f f had m i s r e p r e s e n t e d l o t s seven through t h i r t e e n as having b u i l d i n g s i t e s on them, when i n f a c t such l o t s were l o c a t e d i n a f l o o d p l a i n and no such sites e x i s t e d on some of them. There are f o u r i s s u e s r a i s e d on appeal: 1. Whether t h e District Court e r r e d i n g r a n t i n g t h e non- r e s i d e n t c o r p o r a t e d e f e n d a n t ' s c o u n t e r c l a i m f o r r e s c i s s i o n ? 2. Whether t h e D i s t r i c t C o u r t ' s f i n d i n g of f r a u d is sup- p o r t e d by s u b s t a n t i a l e v i d e n c e ? 3. Whether t h e c o u r t e r r e d i n f a i l i n g to c o n s t r u e t h e t w o c o n t r a c t s as one? 4. Whether a t t o r n e y f e e s should have been awarded t o t h e p r e v a i l i n g p a r t y ? The i s s u e of whether t h e District Court should have g r a n t e d t h e n o n r e s i d e n t c o r p o r a t e d e f e n d a n t I s c o u n t e r c l a i m f o r r e s c i s s i o n is t h e most e a s i l y r e s o l v e d . A p p e l l a n t s claim t h a t t h e c o r p o r a t i o n c a n n o t assert its c o u n t e r c l a i m f o r r e s c i s s i o n a g a i n s t them. They c i t e s e c t i o n 35-1-1004(1), MCA, which prohi- b i t s a c o r p o r a t i o n n o t a u t h o r i z e d to do b u s i n e s s i n Montana from s u i n g i n t h e c o u r t s of t h i s s t a t e , i n s u p p o r t of t h i s c o n t e n t i o n . However, t h e c o r p o r a t i o n i n t h i s s i t u a t i o n was not i n s t i t u t i n g a s u i t . They were merely defending t h e a c t i o n brought a g a i n s t them b y p l a i n t i f f s , which t h e y have a r i g h t to do under s e c t i o n 35-1-1004(2), MCA. The c o u n t e r c l a i m is j u s t one a s p e c t of t h e d e f e n s e which t h e y are e n t i t l e d to raise and can t h e r e f o r e be b r o u g h t . The n e x t i s s u e t o be addressed is whether t h e r e is substan- t i a l c r e d i b l e evidence to s u p p o r t t h e f i n d i n g of f r a u d . There are n i n e e l e m e n t s which must be e s t a b l i s h e d to prove f r a u d . These are: "1. A r e p r e s e n t a t i o n ; " 2 . F a l s i t y of t h e r e p r e s e n t a t i o n ; " 3 . M a t e r i a l i t y of t h e r e p r e s e n t a t i o n ; " 4. S p e a k e r ' s knowledge of t h e f a l s i t y of t h e r e p r e s e n t a t i o n o r ignorance of its t r u t h ; " 5 . S p e a k e r ' s i n t e n t it should be r e l i e d upon ; "6. The h e a r e r ' s ignorance of t h e f a l s i t y of t h e r e p r e s e n t a t i o n ; " 7 . The h e a r e r ' s r e l i a n c e on t h e r e p r e s e n t a - t i o n ; "8. The h e a r e r ' s r i g h t to r e l y on t h e r e p r e s e n t a t i o n ; and " 9. Consequent and proximate i n j u r y caused by t h e r e l i a n c e on t h e r e p r e s e n t a t i o n . " Van E t t i n g e r v. Pappin ( 1 9 7 6 ) , 180 Mont 1, 1 0 , 588 P.2d 988. The District Court i n t h i s c a s e b e l i e v e d t h a t a l l of s a i d e l e m e n t s were p r e s e n t as is evidenced by its f i n d i n g of f a c t number e i g h t s t a t i n g t h a t t h e p l a i n t i f f f r a u d u l e n t l y r e p r e s e n t e d l o t s seven through t h i r t e e n and its c o n c l u s i o n of l a w number one s t a t i n g t h a t r e s c i s s i o n was p r o p e r due to f r a u d . A p p e l l a n t s raise t w o major c o n t e n t i o n s i n t h i s r e g a r d . F i r s t l y , t h e y contend t h a t because t h e d e f e n d a n t s had t h e oppor- t u n i t y t o i n v e s t i g a t e to see whether t h e r e were a c t u a l l y b u i l d i n g sites on t h e l o t s , and t h a t s i n c e t h e y d i d n o t t h e y cannot complain. But, t h i s is n o t t h e case. I n J e n k i n s v. H i l l a r d ( 1 9 8 2 ) , 647 P.2d 354, 39 St.Rep. 1156, t h i s Court s t a t e d : "Van E t t i n g e r and Lowe do n o t s t a n d f o r t h e - - - . - p r o p o s i t i o n t h a t a buyer must assume a seller o r h i s a g e n t is l y i n g when t h e buyer is t o l d a p l a u s i b l e e x p l a n a t i o n f o r a d e f e c t and what is r e q u i r e d to c u r e t h e d e f e c t . The Kansas Supreme Court h a s e x p r e s s e d t h e l i m i t a t i o n s t h a t need to be placed on t h e Van E t t i n g e r and Lowe cases: "'The t r e n d of t h e d e c i s i o n s of t h e c o u r t s of t h i s and o t h e r states is towards t h e j u s t d o c t r i n e t h a t where a c o n t r a c t is induced by f a l s e r e p r e s e n t a t i o n s as t o material e x i s t e n t f a c t s , which are made w i t h t h e i n t e n t to d e c e i v e , and upon which t h e p l a i n t i f f r e l i e d , it is no d e f e n s e , to t h e a c t i o n f o r r e s c i s s i o n or f o r damages a r i s i n g o u t of t h e d e c e i t , t h a t t h e p a r t y to whom t h e r e p r e s e n t a t i o n s were made might , w i t h due d i l i g e n c e , have d i s c o - v e r e d t h e i r f a l s i t y , and t h a t he made no s e a r c h i n g i n q u i r y i n t o f a c t s . I 11 Nordstrom v. Miller ( 1 9 8 0 ) , 227 Kan. 591 605 P.2d 545, 553, q u o t i n g Speed v. Hollingsworth ( 1 8 9 4 ) , 54 Kan. 436, 440, 38 P. 496, 497. " O p p o r t u n i t y to i n s p e c t i n i t s e l f is no d e f e n s e to p o s s i b l e w i l l f u l m i s r e p r e s e n t a t i o n s t h a t , because of t h e i r p l a u s i b i l i t y , p r e c l u d e f u r t h e r i n v e s t i g a t i o n . See also, Schech ter v. B r e w e r (Mo. 1 9 6 1 ) , 344 S.W.2d 784, and Lumby v. Doetch ( 1 9 7 9 ) f Mont . , 600 P.2d 200, 36 St.Rep. 1683:"- - 3 9 ~ t . ~ g p ; - . a t 1160. Secondly, t h e y contend t h a t because you can b u i l d on a f l o o d p l a i n i f r e g u l a t i o n s are m e t or t h a t t h e l o t s could be r e a r r a n g e d so a b u i l d i n g s i t e e x i s t s on each t h a t they are not l i a b l e . However, t h i s is n o t t h e case as n e i t h e r of t h e s e s i t u a t i o n s h a s a n y t h i n g to do w i t h t h e r e p r e s e n t a t i o n t h a t t h e D i s t r i c t Court must have determined t h e p l a i n t i f f to have made, t h a t t h e r e were b u i l d i n g sites o u t s i d e t h e f l o o d p l a i n on each l o t . A s t h i s Court h a s s t a t e d on p r e v i o u s innumerable o c c a s i o n s a d e c i s i o n of t h e District Court w i l l n o t be o v e r t u r n e d where 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 e v i d e n c e to s u p p o r t it. Lumby v. Doetch ( 1 9 7 9 ) , 600 P.2d 2001 36 St.Rep. 1684. I n making a d e t e r - m i n a t i o n on t h e i s s u e of s u b s t a n t i a l e v i d e n c e t h i s Court is guided by a number of p r i n c i p l e s . These are most c o n c i s e l y set o u t i n Lumby where t h i s Court s t a t e d : " I n r e s o l v i n g t h i s i s s u e , w e are guided by a number of p r i n c i p l e s e s t a b l i s h e d b y t h i s C o u r t . The c r e d i b i l i t y of w i t n e s s e s and t h e w e i g h t to be g i v e n t h e i r t e s t i m o n y are matters f o r t h e D i s t r i c t C o u r t ' s d e t e r m i n a t i o n i n a n o n j u r y case. Corscadden v. Kenney ( 1977 ) , Mont . 572 P.2d 1234, 1237, 34 S t .Rep. 1533;-1-577. Thus, i n examining t h e s u f f i c i e n c y of t h e e v i d e n c e , w e must view t h e same i n a l i g h t most f a v o r a b l e to t h e pre- v a i l i n g p a r t y , and w e w i l l presume t h e f i n d - i n g s and judgment by t h e District Court are correct. H e l l i c k s o n v. Barrett Mobile Home T r a n s p o r t , I n c . ( 1 9 7 3 ) , 1 6 1 Mont. 455, 459, 507 P.2d 523, 525. W e w i l l n o t o v e r t u r n t h e f i n d i n g s and c o n c l u s i o n s of t h e District C o u r t u n l e s s t h e r e is a decided preponderance o f t h e e v i d e n c e a g a i n s t them, and when t h e e v i d e n c e f u r n i s h e s r e a s o n a b l e grounds f o r d i f - f e r e n t c o n c l u s i o n s , t h e f i n d i n g s of t h e District Court w i l l n o t be d i s t u r b e d . Morgen and Oswood Const. C o . v . Big Sky of Mont. ( 1 9 7 6 ) , 1 7 1 Mont. 268, 275, 557 P.2d 1017, 1021. The burden of proof is on t h e a p p e l l a n t . Schuman v . S t u d y Com'n of Yellowstone Cty. (1978 ) , Mont . - . - , 578 P.2d 291, 292, 35 S t . R e p . 3 8 6 , 388." 600 P.2d a t 202. I n examining t h i s record i n l i g h t of t h e s e p r i n c i p l e s and d e s p i t e t h e many c o n f l i c t s i n t h e e v i d e n c e r e l a t i n g to t h e above enumerated n i n e e l e m e n t s of f r a u d , w e cannot o v e r t u r n t h e D i s t r i c t Court s d e c i s i o n , as 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 e v i - dence i n t h e r e c o r d to s u p p o r t its f i n d i n g t h a t f r a u d e x i s t e d . The t h i r d i s s u e r a i s e d on appeal c o n c e r n s whether t h e two c o n t r a c t s be tween t h e p l a i n t i f f and t h e i n d i v i d u a l d e f e n d a n t s and t h e p l a i n t i f f and t h e c o r p o r a t e d e f e n d a n t should be c o n s t r u e d as o n e . A s noted above, t h e D i s t r i c t Court found them t o be s e p a r a t e . A c o r p o r a t i o n h a s a s e p a r a t e and d i s t i n c t i d e n t i t y from its s t o c k h o l d e r s . Monarch F i r e I n s u r a n c e C o . v. Holmes ( 1 9 4 2 ) , 1 1 3 Ilont. 303, 308, 124 P.2d 994. A p p e l l a n t s urge t h a t t h i s s e p a r a t e i d e n t i t y be d i s r e g a r d e d , as G r i f f and Caplan and t h e c o r p o r a t i o n are one and t h e same, and t h e c o n t r a c t s be c o n s t r u e d as one under s e c t i o n s 28-3-301 and 28-3-203, MCA. However, t h e g e n e r a l r u l e set down by t h i s Court i n Monarch F i r e I n s u r a n c e Co. v. H o l m e s , s u p r a , as to d i s r e g a r d i n g a c o r p o r a t e i d e n t i t y is: " I . . . a c o r p o r a t i o n r e t a i n s its s e p a r a t e and d i s t i n c t i d e n t i t y where its s t o c k is owned p a r t l y or e n t i r e l y by a n o t h e r c o r p o r a t i o n a s w e l l as where it is owned by n a t u r a l p e r s o n s . ' ( 1 8 C. J. S., C o r p o r a t i o n s , sec. 5 , p. 375.) Before t h e c o r p o r a t e cloak w i l l be d i s r e g a r d e d it must appear n o t o n l y t h a t t h e c o r p o r a t i o n is c o n t r o l l e d and i n f l u e n c e d by one or a f e w p e r s o n s , b u t , i n a d d i t i o n , it is n e c e s s a r y to d e m o n s t r a t e t h a t t h e c o r p o r a t e c l o a k is u t i - l i z e d a s a s u b t e r f u g e to d e f e a t p u b l i c con- v e n i e n c e , to j u s t i f y wrong, or to p e r p e t r a t e f r a u d . ( 1 8 C. J. S., C o r p o r a t i o n s , s e c . 6 , p. 378.) Under t h e i d e n t i t y t h e o r y it must a p p e a r from t h e e v i d e n c e and must be suf- f i c i e n t l y a l l e g e d t h a t t h e s u b s i d i a r y cor- p o r a t i o n is a mere c r e a t u r e of t h e p a r e n t , having no s e p a r a t e b u s i n e s s e x i s t e n c e and s e r v i n g as a mere b u s i n e s s c o n d u i t of t h e p a r e n t s ( I n re Muncie P u l p C o . , 2 C r , 139 Fed. 546) o r a mere department of t h e p a r e n t ( I n t e r s t a t e T e l . Co. v . B a l t i m o r e & 0. T e l . C o . , C. C . , 5 1 Fed. 4 9 ) . " I n People ex r e l . Studebaker Corp. v. G i l c h r i s t , 244 N.Y. 114, 155 N.E. 68, 71, it is s a i d : ' Bef ore " t h e c o r p o r a t i o n persona" may be i g n o r e d , t h e e v i d e n c e must show t h a t " t h e s u b s i d a i r y is n o t l e f t w i t h any autonomy" . . . P r o c t o r & Gamble C o . v . Newton, s u p r a [D.C. 289 Fed. 10131) and t h a t t h e p a r e n t , though i n form speaking and a c t i n g through a n o t h e r , is o p e r a t i n g t h e b u s i n e s s d i r e c t l y f o r i t s e l f .' ( S e e , also, Erickson v. Revere E l e v a t o r C o . , 110 Minn. 443, 126 N.W. 1 3 0 . ) " 113 Mont. a t 308. I n t h e p r e s e n t case t h e r e is a c o n f l i c t i n t h e two s i d e s ' v e r s i o n s as to how and a t whose urging t h e terms of t h e s e t w o c o n t r a c t s came i n t o being. The Wortmans claim t h a t they s o l d t h e land to G r i f f and Caplan as i n d i v i d u a l s . They m a i n t a i n t h a t t h e s e p a r a t e c o n t r a c t s were made a t t h e r e q u e s t of G r i f f and Caplan, to them i n d i v i d u a l l y and to t h e c o r p o r a t i o n . Thus, they claim t h a t it is one c o n t r a c t evidenced by t w o i n s t r u m e n t s and a d e f a u l t on e i t h e r h a l f c o n s t i t u t e s a d e f a u l t on t h e whole. On t h e o t h e r hand, t h e r e s p o n d e n t s contend t h a t t h e c o n t r a c t s are s e p a r a t e and d i s t i n c t . They claim t h e c o n t r a c t s were drawn by t h e p l a i n t i f f s 1 a t t o r n e y a t t h e p l a i n t i f f s 1 d i r e c t i o n , and t h a t n e i t h e r c o n t r a c t r e f e r s to t h e o t h e r . F i n a l l y and unequivo- c a l l y t h e y p o i n t o u t t h a t both c o n t r a c t s are c l e a r and unam- biguous on t h e i r f a c e . Where such a c o n f l i c t e x i s t s , as p r e v i o u s l y p o i n t e d o u t , t h i s C o u r t can o n l y l o o k t o see i f t h e lower c o u r t ' s f i n d i n g s and c o n c l u s i o n s are supported by t h e r e c o r d . Matters of t h e c r e d i - b i l i t y of t e s t i m o n y are l e f t f o r t h e D i s t r i c t C o u r t ' s d e t e r - m i n a t i o n , Lumby v. Doetch, s u p r a . I n t h i s case, t h e c o n t r a c t s speak f o r themselves. They are clear and unambiguous on t h e i r f a c e s . N e i t h e r makes t h e s l i g h t e s t r e f e r e n c e to t h e o t h e r . The l a w of Montana is t h a t where t h e language is clear and unambiguous on its f a c e , it is t h e d u t y of t h e c o u r t t o e n f o r c e it a s t h e p a r t i e s made it, Ryan v. Board of County Commissioners ( 1 9 8 0 ) , 620 P.2d 1203, 1207, 37 St.Rep. 1965, Madison Fork Ranch v. L & B Lodge P o l e Timber P r o d u c t s ( 1 9 8 0 ) , 615 P.2d 900, 37 St.Rep. 1468. The p a r t i e s h e r e are n o t t h e same a s a p p e l l a n t s contend, because a l t h o u g h t h e r e may be some e v i d e n c e i n t h e record t o s u p p o r t d i s r e g a r d i n g t h e c o r p o r a t i o n ' s s e p a r a t e i d e n t i t y , based on t h e r u l e enumerated i n Monarch F i r e I n s u r a n c e C o . , s u p r a , t h e r e is also e v i d e n c e i n t h e r e c o r d m i t i g a t i n g a g a i n s t t h e a p p l i c a t i o n of t h a t r u l e . W e f i n d t h i s m i t i g a t i n g e v i d e n c e s u b s t a n t i a l and t h u s cannot i n t e r f e r e w i t h t h e d e c i s i o n of t h e D i s t r i c t Court. The f i n a l i s s u e r a i s e d on a p p e a l , by t h e r e s p o n d e n t s is whether t h e y should have been awarded a t t o r n e y ' s f e e s as t h e pre- v a i l i n g p a r t y . The c o n t r a c t s both p r o v i d e t h a t : " I n t h e e v e n t of l e g a l a c t i o n to r e g a i n p o s s e s s i o n or to e n f o r c e t h e r i g h t s of any p a r t y t o t h i s agreement, it is understood t h a t t h e p r e v a i l i n g p a r t y s h a l l be e n t i t l e d to a r e a s o n a b l e a t t o r n e y ' s f e e to be f i x e d by t h e C o u r t i n such act i o n ; " T h i s language i n i t s e l f is clear and unambiguous, and t h e c o u r t s h o u l d have e n f o r c e d it as made by t h e p a r t i e s , Ryan v. Board of County Commissioners, 620 P.2d a t 1207. T h i s Court h a s pre- v i o u s l y upheld such an award of a t t o r n e y ' s f e e s by t h e D i s t r i c t C o u r t where t h e c o n t r a c t f a i r l y provided f o r them. Hares v. Nelson ( 1 9 8 1 ) , 637 P.2d 1 9 , 38 St.Rep. 2036. The judgment of t h e District Court is af firmed and t h i s case is remanded f o r f u r t h e r proceeding W e concur: