Title: VAN ETTINGER v PAPPIN

State: montana

Issuer: Montana Supreme Court

Document:

No. 14253 IN THE SUPREME COURT OF THE STATE MONTANA 1978 ROBERT C. VAN ETTINGER and RUTH E. VAN ETTINGER, husband and wife, Plaintiff and Appellant, ROBERT F. PAPPIN et al., Defendants and Respondents. Appeal from: District Court of the Eighth Judicial District, Honorable Joel G. Roth, Judge presiding. Counsel of Record: For Appellant: Richter and Lerner, Billings, Montana Alan J. Lerner argued, Billings, Montana Hartelius and Lewin, Great Falls, Montana For Respondents: Swanberg, Koby, Swanberg & Matteucci, Great Falls, Montana John Alke argued, Great Falls, Montana Submitted: November 22, 1978 Decided: D F - 2 - 1 1978 M r . J u s t i c e Gene B. Daly delivered t h e Opinion of t h e Court. This is an appeal by t h e p l a i n t i f f s from summary judg- ment entered i n behalf of t h e defendants by t h e District Court of t h e Eighth J u d i c i a l D i s t r i c t , County of Cascade, t h e Honorable J o e l G. Roth s i t t i n g without a jury. O n December 3, 1975, t h e Van E t t i n g e r s , appellants, f i l e d t h i s a c t i o n f o r damages a r i s i n g o u t of a c o n t r a c t f o r t h e sale of r e a l estate under which they purportedly pur- chased an easement f o r t h e use of a swimming pool. The complaint alleged breach of c o n t r a c t , fraud, negligence and v i o l a t i o n of t h e R e a l E s t a t e License A c t by defendant- respondents. Respondents a r e the Pappins, p r i o r owners of t h e house; Tom Mather, James Durkin and Tom Mather & Asso- c i a t e s , t h e r e a l t o r s involved i n t h e s a l e ; and Western Surety Company, t h e r e a l t y bonding company. Depositions were taken and i n t e r r o g a t o r i e s w e r e ex- changed. On June 30, 1977, respondents f i l e d a motion f o r summary judgment on a l l of a p p e l l a n t s ' claims f o r r e l i e f . On September 26, 1977, appellants f i l e d a cross-motion f o r p a r t i a l summary judgment on t h e i s s u e s of l i a b i l i t y on a l l claims and on t h e i s s u e of s t a t u t o r y damages and entitlement t o attorney f e e s under t h e Real Estate License Act. Following o r a l argument on November 7, 1977, on t h e mutual motions f o r summary judgment, t h e D i s t r i c t Court entered findings of f a c t , conclusions of l a w , and an order granting respondents' motion f o r summary judgment and deny- ing appellants' cross-motion f o r summary judgment. O n appeal appellants do not c o n t e s t t h e D i s t r i c t Court's r u l i n g t h a t a claim of negligence under t h e circumstances s t a t e s no case upon which r e l i e f can be granted. They do contest the dismissal of the counts alleging breach of contract, fraud, and violation of the Real Estate License Act. This case involves the use of a swimming pool which straddles two l o t s , numbered 29 and 30, i n a Great F a l l s , Montana, subdivision. T w o additional l o t s , numbered 13 and 1 4 , a r e involved i n the controversy. The l o t s abut one another a s diagrammed: Alder S t r e e t pool Beach S t r e e t In 1961 defendant Robert Pappin owned l o t s 1 4 and 29 and defendant T o m Mather owned l o t s 13 and 30. A t t h a t time they agreed t o j o i n t l y develop l o t s 29 and 30. A s p a r t of t h i s development, they b u i l t a swimming pool straddling l o t s 29 and 30. Mather subsequently sold l o t 30 t o the Penning- tons, who along with the Pappins, s t i l l the owners of l o t 29, executed and recorded i n September, 1961, an easement f o r the use of the swimming pool i n favor of each other. This easement does not mention e i t h e r l o t 13 o r 1 4 . In October, 1 9 6 1 , another easement agreement was drawn, purportedly between the owners of a l l four l o t s , whereby the owners of l o t s 29 and 30 granted a permanent easement f o r the use of the pool t o the owners of l o t s 13 and 1 4 . Under t h i s agreement the costs necessary t o use of the pool were t o be borne equally by the parties. This easement was not recorded nor was the name o r signature of the owner of l o t 29 provided. It appears t h a t a t t h e t i m e of the execution of t h i s instrument Pappins s t i l l owned both l o t s 1 4 and 29; t h e Mathers signed as owners of l o t 13; and t h e Penningtons signed as owners of l o t 30. A t t h e t i m e of t h e i n c i d e n t s complained of i n t h i s case, l o t 29 w a s owned by t h e Nobles, l o t 30 by t h e Howrys, and l o t 13 by t h e Mathers u n t i l January 1, 1974, and t h e Huffords t h e r e a f t e r . Although t h e ownership of t h e various l o t s changed over t i m e , t h e unrecorded easement agreement was honored by a l l subsequent owners. I n August, 1973, however, t h e Pappins s e n t a letter t o t h e "Members of t h e Swimming Pool Associa- tion" s t a t i n g t h a t as a r e s u l t of t h e i r move t o a downtown apartment they w e r e "resigning from t h e swimming pool" and seeking i n s t r u c t i o n s as t o whether t h e remaining members "wish[ed] t h e new owners t o p a r t i c i p a t e i n t h e swimming pool o r i f [they] would p r e f e r t o r e t a i n it among the t h r e e present members." Thereafter t h e Pappins d i d not c o n t r i b u t e t o t h e upkeep of t h e pool. I n September, 1973, t h e Pappin home located on l o t 1 4 was l i s t e d f o r s a l e with Tom Mather's real e s t a t e agency. Pappin, a s a r e a l e s t a t e salesman i n t h i s agency, received a $386.50 l i s t i n g commission. Without t h e knowledge of Pappin, however, Tom Mather indicated on t h e multiple l i s t i n g employ- ment c o n t r a c t t h a t included i n t h e s a l e of t h e house w a s a "perpetual easement f o r pool use v i a 1 / 4 expenses sharing". The m u l t i - l i s t i n g agreement and newspaper advertisements f o r t h i s property prepared from the multiple l i s t i n g employment c o n t r a c t both mentioned t h e easement f o r t h e use of t h e pool. I n May, 1974, Robert Van E t t i n g e r , intending t o move with h i s family from California t o Great F a l l s , signed a buy-sell agreement with the Pappins. p his agreement con- tained three references t o the swimming pool: "The following personal property is a l s o t o be l e f t upon the premises a s a p a r t of the property purchased. . . and easement f o r pool use . . . " * I t is understood by the buyer t h a t the pool i s owned by Lots 29 and 30, Block 7, Country Club Addition and t h a t Lot 1 4 has had the r i g h t of easement f o r use by contributing one-fourth ( 1 / 4 ) of the c o s t of maintanance ( s i c ) , opera- t i o n and taxes. "The use of the pool requires the buyer t o pay 1 / 4 of the c o s t of the operation of the pool." I n early July, 1974, a f t e r talking t o the owners of l o t s 29 and 30, Van Ettinger became concerned t h a t he and h i s family would not be allowed t o use the swimming pool. He was assured by the r e a l e s t a t e agency t h a t they would be allowed t o use the pool. O n July 20, p r i o r t o f i n a l closing of the s a l e , appel- l a n t s moved i n t o the house on l o t 1 4 . O n the same day the access gate between l o t 1 4 and the pool was removed by the owners of l o t s 29 and 30. O n July 2 1 Van Ettinger t r i e d t o use the pool and was prohibited from doing so by Howry, who threatened t o have him arrested f o r trespass. O n July 22 Van Ettinger hand delivered a l e t t e r t o T o m Mather demanding he r e c t i f y the pool s i t u a t i o n created by the Nobles' and Howrys' refusal t o l e t them use the pool. Mather talked t o the Nobles and Howrys and t r i e d t o convince them t o allow appellants the use of the swimming pool. They refused, and Mather then talked t o appellants on July 26, advising them t h a t the Nobles and Howrys would not acquiesce t o t h e i r use of the pool. To placate appellants Mather offered a t t h a t time t o buy them a country club membership which would allow them use of the country club's pool. I n s p i t e of these events appellants closed t h e i r loan a p p l i c a t i o n with t h e lending i n s t i t u t i o n on J u l y 28, 1974, and closed the s a l e transaction on J u l y 30. After closing t h e transaction, appellants f i l e d t h e i n s t a n t action. The following i s s u e s are presented t o t h i s Court f o r review: 1. Whether t h e D i s t r i c t Court erred i n granting re- spondents' motion f o r summary judgment on a p p e l l a n t s ' count a l l e g i n g breach of contract? 2. Whether t h e D i s t r i c t Court e r r e d i n granting re- spondents' motion f o r summary judgment on appellants' count a l l e g i n g fraud? 3 . Whether t h e D i s t r i c t Court e r r e d i n denying appel- l a n t s ' motion f o r p a r t i a l summary judgment on t h e i r count a l l e g i n g v i o l a t i o n of t h e Real E s t a t e License Act of 1963 and i n granting respondents' motion f o r summary judgment on a p p e l l a n t s ' count a l l e g i n g v i o l a t i o n of t h e Real E s t a t e License A c t of 1963? I t i s most productive t o begin analyzing t h i s problem from t h e l a s t events backwards and determine t h e e f f e c t on t h e various causes of a c t i o n of appellants proceeding t o closing t h e sales transaction. This e f f e c t is seen most c l e a r l y on t h e c o n t r a c t theory i n appellants' complaint. Despite t h e a s s e r t i o n by appellants t h a t they closed t h e t r a n s a c t i o n on July 20, t h e record i t s e l f i n d i c a t e s t h e t r a n s a c t i o n d i d not c l o s e u n t i l between J u l y 28 and 30. I n h i s deposition M r . Van Ettinger himself states it w a s be- tween t h e 28th and 30th of July when he signed t h e papers a t t h e bank. The warranty deed from Pappins t o appellants, a document of public record, w a s n o t executed u n t i l J u l y 29 and was not delivered t o appellants u n t i l ~ u l y 30. I n a d d i t i o n appellants remained i n possession of t h e house a t l e a s t u n t i l April 29, 1976, when t h e i r depositions were taken. I n view of t h i s record appellants' simple a s s e r t i o n t h a t t h e transaction closed on J u l y 20 w i l l n o t serve t o c r e a t e an i s s u e of f a c t merely t o avoid summary judgment. Brown v. Thornton (1967), 150 Mont. 150, 155, 432 P.2d 386, The determination t h a t the transaction closed between J u l y 28 and 30 means t h e events taking place u n t i l then must be considered i n determining t h e e f f e c t of a p p e l l a n t s ' decision t o c l o s e t h e s a l e . Between J u l y 20 and 28, appel- l a n t s witnessed t h e removal of t h e access g a t e t o t h e swim- ming pool on J u l y 20, t h e d a t e they moved i n t o t h e house on l o t 1 4 ; M r . Van E t t i n g e r was threatened with a r r e s t f o r trespassing when he attempted t o use t h e pool on J u l y 21; and defendant Tom Mather, a f t e r t a l k i n g t o t h e owners of l o t s 29 and 30, informed appellants on J u l y 26 t h a t these p a r t i e s refused t o allow them use of t h e pool. Despite these graphic indications from t h e o t h e r par- ties t h a t t h e r e might be d e f e c t s i n t h e purported easement and the apparent acquiescence by one of the r e a l t o r s in- volved i n t h e matter, appellants proceeded through f i n a l closing stages of t h e s a l e s transaction and remained i n pos- session of t h e house. Clause 3 of t h e sales c o n t r a c t being sued upon states: " I f t h e seller does n o t approve t h e s a l e within two days h e r e a f t e r , o r i f s e l l e r ' s t i t l e is n o t merchantable o r insurable and cannot be made so within a reasonable t i m e a f t e r w r i t t e n n o t i c e containing statement of d e f e c t s i s delivered t o seller, then s a i d e a r n e s t money herein re- ceipted f o r s h a l l be returned t o t h e purchaser on demand and a l l r i g h t s of purchaser t e r m i - nated unless purchaser waives s a i d d e f e c t s and elects - t o purchase." (Emphasis added.) C he deed given by the Pappins to appellants conveyed all of the pappins' rights, title, and interest in lot 14 as well as all easements attached thereto. Sections 67-1522, 67-1523, 67-1607, R.C.M. 1947. Appellants chose to waive any defects in Pappins' title when they agreed to close the transaction. This waiver was made with the knowledge of a possible dispute over the easement and effectively precludes any remedy based on a contract theory. Appellants' decision to close the sale also served in part to waive any claim for relief based on fraud. In this case Mr. Van Ettinger's desposition shows he had conducted independent investigations which revealed unequivocally that the Nobles and Howrys, as owners of lots 29 and 30, would refuse appellants access to the pool. In fact he was so advised for the first time even before he signed the buy- sell agreement. Throughout this period of time he asserts he was fraudulently reassured by defendant realtors that everything would be all right with the easement. True as this may be, on July 26 Tom Mather flatly told appellants they would not be allowed to use the pool by the other owners and offered to pay for a membership in the country club as an alternative. Clearly, any claim that the reassurance continued past this date is unfounded. Yet appellants proceeded to close the transaction. Appellants must have the ability to make a prima facie showing of nine elements for their fraud claim to survive. These elements are identified in Bails v. Gar (1976), 171 Mont. 343, 558 P.2d 458, 461, 33 St.Rep. 1256, 1259; Cowan v. Westlund Realty (1973), 162 Mont. 379, 383, 512 ~ . 2 d 714, 716; and Clough v. Jackson (1971), 156 Mont. 272, 279-80, 479 P.2d 266, 270: 1. A representation; 2. Falsity of the representation; 3. Materiality of the representation; 4 . Speaker's knowledge of the falsity of the repre- sentation or ignorance of its truth; 5. Speaker's intent it should be relied upon; 6. The hearer's ignorance of the falsity of the repre- sentation; 7 . The hearer's reliance on the representation; 8. The hearer's right to rely on the representation; and 9 . Consequent and proximate injury caused by the reliance on the representation. Even the excerpts taken from appellants' version of what happened show, that at the very least, they cannot make a prima facie showing of elements six through eight. In the first place appellants cannot show their ignor- ance of the falsity of respondents' alleged representations. From the very beginning, they knew the opposite--that the Nobles and Howrys would refuse to let them use the swimming pool. According to Mr. Van Ettinger, this knowledge was obtained before he signed the buy-sell agreement. Appellants knew at all times the Nobles' and Howrys' statements were in direct opposition to those alleged to have been made by respondents, and they knew it was the actions of the other owners which would dictate their ability to use the pool, not the actions of the real estate people. ~dditionally, appellants cannot show reliance, the seventh element. They elected to purchase lot 14 despite three warnings from the Nobles and Howrys that they would not be able to use the pool, despite the events of ~ u l y 20 (removal of t h e access g a t e ) , July 21 ( a r r e s t t h r e a t f o r t r e s p a s s ) and J u l y 26 (Mather's n o t i f i c a t i o n t h a t t h e Nobles and Howrys would n o t allow appellants t o use t h e pool and h i s o f f e r of a country club membership an an a l t e r n a t i v e ) . Assuming fraud u n t i l J u l y 20, a p p e l l a n t s ' a c t i o n s a f t e r t h a t d a t e make any claim of r e l i a n c e unsupportable. Appellants could not r e l y on t h e alleged representa- t i o n s of respondents a s a matter of law. I n Lee v. Stock- mans National Bank (1922), 63 Mont. 262, 284, 207 P. 623, 630, it was s t a t e d : "When it appears t h a t a party, who claims t o have been deceived t o h i s prejudice, has inves- t i g 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 repre- 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 such representations made t o him, however f a l s e they m a y -- have been, a f f o r d s no ground of complaint, (Grinrod v. Anglo-American Bond Co. 34 Mont. 169, 85 P. 891; Power & Brothers v. Turner, 37 Mont. 521, 97 P. 950; 26 C . J . 1149.)" (Emphasis added.) Appellants made an independent i n v e s t i g a t i o n i n t o t h e pool s i t u a t i o n , and they are barred from now claiming t h e purchase was made i n r e l i a n c e on respondents' misrepresenta- t i o n s . Lowe v. Root (1975), 166 Mont. 150, 156, 531 P.2d An a l t e r n a t i v e ground f o r t h i s holding is t h e general r u l e as s t a t e d i n 37 Am.Jur.2d Fraud and Deceit 8394 a t 534- " A s a general r u l e , where a c o n t r a c t is wholly executory, n e i t h e r p a r t y having performed any p a r t of it, i f one p a r t y a s c e r t a i n s t h a t t h e o t h e r has been g u i l t y of fraud i n t h e pro- curing o r making of a c o n t r a c t o r with r e f e r - ence t o t h e s u b j e c t m a t t e r thereof, he may repudiate t h e c o n t r a c t , since it is i n no way binding upon him, and i n such circumstances t h e defrauded p a r t y may not remain s i l e n t a s t o t h e fraud and perform t h e c o n t r a c t and then claim damages for- t h e fraud. -- It i s very gen- era11 held t h a t one who discovers t h a t fraud Y---- has been practiced upon him while t h e trans- -- -- - a c t i o n remains wholly executory, b u t - neverthe- less either executes or performs it on his --- part or requires performance on the part of -- -- the other party, thereby waives the fraudand cannot subsequently maintain an action for damages theref or. " (~mphasisadded. ) Until appellants decided to close the sale on July 30, performance under the contract was executory for both par- ties. However, by July 26 appellants knew in no uncertain terms that the Nobles and Howrys would not allow them to use the pool. Additionally, Tom Mather had advised them that the Nobles and Howrys would not let them use the pool and offered them a country club membership. Yet appellants decided to close the sale on July 30. Until that point performance under the contract was executory for both par- ties with the exception of the earnest money paid to make the buy-sell agreement enforceable. On the date of July 30 appellants fully performed their obligation of payment of the purchase price and demanded performance from respondents Pappin, who in turn performed their obligation of conveyance. Appellants' decision to go through with the purchase con- stitutes a waiver of the alleged fraud and bars them from now posing that fraud as a claim for relief. Appellants' reliance on State ex rel. Dimler v. District Court (1976), 170 Mont. 77, 550 P.2d 914, is misplaced. In that case the defects in the purchased property were not discovered until the day following the purchase. 170 Mont. at 79, 550 P.2d at 918. In the instant action appellants received numerous, consistent, and graphic indications that there were problems with the use of the pool culminating with the apparent acceptance of the realtor selling them the house in the view that they would not be able to use the pool after all. All of these indications were given before closing the sale. One futher point concerning appellants' contract and fraud theories needs to be made. Appellants have not ac- tually litigated the existence of this easement against the other owners who are forbidding their use of the pool. Neither are these parties joined in this action. As it stands now, the current action is not the proper case to decide whether in fact an easement does exist for the simple reason that the owners of the purported servient estates (lots 29 and 30) as indispensable parties are not repre- sented in this action and cannot have a binding judgment rendered against their possible interests or claims. Rule 19, M.R.Civ.P. Therefore, appellants have put the cart before the horse: They are suing under their contract and fraud theories for respondents' attempt to convey a non- existent easement which has never been shown not to exist. The final issue presented by appellants has to do with the violation of the Real Estate License Act, section 66- 1924, et seq., R.C.M. 1947, by the various real estate agents involved in this sale. At the time of these incidents section 66-1937, R.C.M. 1947, provided that a broker or agent may have his license suspended or revoked for: " (9) Offering real property -- for sale or lease without the knowledge and consent of the owner or his authorized agent or on any terms other than those authorized & the owner or his authorized agent." (Emphasis added. ) Subsection (b) and (c) of section 66-1940 creates civil penalties for violation of this Act. Under the statute these penalties may be recovered only "by any person aggrieved", subsection (b), or "[alny person sustaining damages", subsec- tion (c), and see Denny v. Brissoneaud (1973), 161 Mont. 468, 474-75, 506 P.2d 77, 80. Clearly, appellants can qualify under neither subsection. In the first place, as discussed above, they have failed to establish the nonexis- tence of the easement and, therefore, cannot be considered aggrieved. Secondly, and more importantly, by closing the transaction they have waived any claim for damages. There- fore, even if, in fact, there was found to exist a technical violation of the Real Estate License Act, the same arguments that supported the District Court on the fraud and contract issues would apply equally well and support the court on this issue. We agree that the Real Estate Licence Act should be construed to lend maximum efficacy to the enforcement of the fiduciary relationships involved in this profession. Carnell v. Watson (1978), Mont . , 578 P.2d 308, 312, 35 St.Rep. 550, 555. This enforcement should not be taken lightly. Yet, the heavy penalties allowed to be added to common law damages would certainly envision that willful misconduct be present as opposed to a natural or what may be characterized as an "honest" mistake, regardless of the argument that another course of conduct or the lack of some negligence would have avoided the situation complained about. In this case, Tom Mather, the realtor apparently re- sponsible for including the easement in the various listings, had himself been a long-time member of the "swimming pool association", serving as treasurer for the organization for many years. When his neighbor, associate and friend Robert Pappin's house came up for sale, he naturally hoped to emphasize what he considered its strongest selling points, which, to his personal knowledge, included a swimming pool easement. There is no evidence t o suggest t h a t Mather prepared t h e l i s t i n g with t h e i n t e n t i o n t o misrepresent t h e house. The t r i a l c o u r t concluded t h a t none of t h e real e s t a t e persons were proved t o be culpable of such a w i l l f u l misrepre- s e n t a t i o n o r should be held t o answer f u r t h e r under t h e R e a l E s t a t e License Act. The record viewed i n its e n t i r e t y supports t h i s conclusion by t h e D i s t r i c t Court. The j udgmen t of t h e D i s W e Concur: ?&A$' Chief J u s t i c e - - L / h - C ( . 3 L - 4 L - - J u s t i c e s